Non-Linear Dynamics: ESG Investment and Financial Performance Heterogeneity in the Tourism Industry

Abstract

Prior ESG-tourism research predominantly documents performance effects through stakeholder theory, yet relies on aggregated samples and mean-based regression methods that may obscure sectoral variation and non-linear dynamics. This study examines how Environmental, Social, and Governance practices affect firm financial performance across three distinct tourism subsectors in Taiwan, including food service, hotel service, and general tourism service, addressing these methodological and contextual gaps. Employing Quantile-on-Quantile regression on data from Taiwan’s tourism corporation from 2015 to 2023, we capture asymmetric effects across both ESG and performance distributions, integrating Stakeholder theory, reputational benefits, and cost-of-capital theoretical perspectives. Food service firms experience predominantly negative ESG-performance relationships (coefficients −0.40 to −0.10 at lower quantiles), where compliance costs exceed stakeholder benefits, given thin profit margins and transactional customer relationships. Hotels demonstrate positive correlations at performance extremes (quantiles 0.05–0.25 and 0.70–0.95) through operational efficiency gains and brand differentiation. The service sector exhibits volatile mixed patterns reflecting operational diversity. Findings demonstrate that ESG’s contribution to sustainable tourism development depends critically on sectoral operational characteristics and resource capabilities, suggesting that differentiated regulatory frameworks would better facilitate sustainability transitions than uniform ESG mandates.