Sustainability Performance, Cost of Debt, and Institutional Environment Quality: Global Evidence From the Hospitality and Tourism Industry

Abstract

This study examines how sustainability performance affects the cost of debt financing in the hospitality and tourism industry and whether institutional environment quality moderates this relationship. Using a dataset of 2302 firm‐year observations from 34 countries between 2010 and 2022, the results show that sustainability performance is negatively associated with the cost of debt financing, indicating that sustainability initiatives reduce lender‐perceived risk. Notably, institutional environment quality strengthens this relationship, as countries with stronger governance frameworks and regulatory enforcement enable lenders to reward sustainability commitments more effectively. However, the association weakened during the COVID‐19 pandemic, highlighting how systemic uncertainty altered lender risk perceptions and curtailed the financial benefits of sustainability practices. The findings remain robust across alternative measures, different model specifications, and controls for endogeneity. The findings provide new cross‐country evidence on how firm‐level sustainability initiatives interact with institutional contexts to shape debt financing costs in the hospitality and tourism industry. This study extends neo‐institutional and stakeholder theories by demonstrating how sustainability practices and national governance jointly influence the cost of debt. It also offers critical insights for managers, lenders, and policymakers seeking to align sustainability strategies with financial resilience.