The Impact of Economic Policy Uncertainty and ESG Reporting on Financial Performance of Hospitality Companies

Abstract

The objectives of this paper are manifold: first, to explore the relationship between economic policy uncertainty (EPU) and the financial performance of hospitality companies (hotels and entertainment), and second, to assess how this relationship is shaped by environmental, social and governance (ESG) reporting. Drawing on a comprehensive international dataset from 14 developed countries spanning 2013 to 2022, the study contributes to the emerging literature on ESG and EPU by analysing how ESG factors influence the link between EPU and corporate financial performance through dynamic panel data regression. Findings of the study indicate that the policy‐related uncertainty has a detrimental impact on the financial performance of hospitality companies. Furthermore, this relationship is not restricted to the current financial performance only; in fact, the detrimental impact of policy‐related uncertainty sustains at 1‐year lagged level, thereby affecting negatively the subsequent year's financial performance. Interestingly, companies with high scores in overall ESG, as well as in individual environmental or governance dimensions, do not perform better during periods of heightened uncertainty compared to those with lower sustainability scores. However, firms with socially solid performance manage to navigate rising business uncertainty more effectively, implying that hospitality firms should value their employees and create an environment of inclusivity and growth for them to succeed.