Weathering the storm: How economic policy uncertainty shapes ESG investment in tourism and hospitality firms

The severe nature of economic policy uncertainty (EPU) may compel tourism companies to adjust their strategic investments to survive and compete. This study investigates the impact of EPU on the environmental, social, and governance (ESG) investments of tourism and hospitality firms. We utilize a large panel dataset of publicly listed Chinese tourism companies from 2013 to 2022 to test three primary hypotheses derived from the real options theory and ESG literature. The findings of the fixed effects panel model suggest that EPU adversely impacts ESG investment in tourism and hospitality firms. Moreover, moderating effect tests indicate that the intensity of this adverse impact on ESG investment is particularly significant for firms facing heightened financing constraints and exhibiting managerial myopia. Our study not only uncovers previously overlooked antecedents of ESG investment but also advances real options theory and enriches the literature on the effects of EPU.