The bright and dark sides of ESG during the COVID-19 pandemic: evidence from China hospitality industry

Purpose: This study aims to investigate the bright and dark sides of environmental, social and governance (ESG) during the COVID-19 pandemic, including both the outbreak and recovery periods, for the Chinese hospitality industry. Design/methodology/approach: Using panel data of 564 firm-quarter observations from 2018 to 2020, the authors adopt fixed-effects regression estimation with standard errors clustered at the firm level. To address potential endogeneity concerns, the authors also use the two-stage least squares estimator with instrumental variables. Findings: The results suggest that ESG plays different roles in market- and accounting-based performance during the COVID-19 outbreak and recovery periods. Specifically, ESG practices show a bright side as a reputation builder to mitigate the negative pandemic impact on market-based performance, whereas the dark side of ESG practices consumes firm resources to aggravate the negative pandemic impact on accounting-based performance during the coronavirus outbreak. These results also suggest hospitality companies benefit bountifully from ESG practices during the COVID-19 recovery. Practical implications: ESG plays a vital role for hospitality firms by providing insurance-like protection during and after the COVID-19 outbreak. Additionally, hospitality firms should evaluate their capability to adapt resource-consuming ESG practices. Originality/value: Existing hospitality COVID-19 studies have investigated the effect of ESG on firm performance within a short period with mixed results. This study extends the literature by showing the different effects of ESG practices on market- and accounting-based performance during the COVID-19 outbreak and recovery periods.