Information Asymmetry in Tourism Market: The Bilateral Effects of ESG Practices on Firm Profitability

The tangible impact of environmental, social, and governance (ESG) practices on firm profitability remains a subject of contention. Existing studies have tended to overlook the potential impact of information asymmetry within the tourism market, particularly in the communication of ESG practices between firms and consumers. This paper, utilizing panel data spanning from 2009 to 2022, employs a two-tier stochastic frontier model to delve into the relationship between ESG practices and firm profitability under information asymmetry. The findings show that the combined effect of ESG practices on firm profitability is adverse when considering information asymmetry between the firm and its consumers, which primarily facilitates the inhibitory facet. The inhibitory and promotional effects of ESG practices interplay here, resulting in the actual profitability level being lower than the benchmark level. Heterogeneity analysis underscores that the characteristics of state-owned enterprises serve to alleviate the inhibitory influence of ESG practices on the profitability of tourism firms.