When green practices affect business performance: an investigation into California’s hotel industry

ABSTRACT

Previous studies suggest there are financial benefits of environmentally friendly business practices. However, a firm’s decision to adopt green initiatives is endogenous. This study attempts to correct for endogeneity bias and uses a novel data set to examine the impact of green practices on business performance in the lodging industry. Findings based on multiple empirical specifications indicate that a hotel’s location plays a determining role in the effect of going green on its performance (e.g. occupancy rate, price, and revenue). Green hotels in resorts and small towns command price and revenue premiums but have no impact on occupancy rates. Further investigation reveals that hotels in less popular cities enjoy the most benefit from becoming green.

KEYWORDS:

• Green business
• hotel performance
• green certification
• TripAdvisor
• economic benefit

JEL CLASSIFICATION:

• L15
• R33
• D22
• Q56

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. https://www.e-unwto.org/doi/epdf/10.18111/9789284412341.

2. Note that the website features may differ at a later time as TripAdvisor frequently updates its website theme and functionalities.

3. Because TripAdvisor frequently redesigns its website appearance, the search result may look different at a later time.

4. STR, Inc. is a U.S. based market research company that tracks supply and demand data for multiple market sectors, including the global hotel industry. STR provides market share analysis for major hotel chains and brands in North America, Europe, Asia Pacific, Middle East, and Africa.

5. https://www.strglobal.com/resources/glossary.

6. A within-group fixed effects model uses time-demeaning on each variable (dependent and independent) – including variables such as time-period dummies – at the group level and then estimate a pooled OLS regression using all time-demeaned variables as follows: $(y_{itg}-{\overline{y}}_{•g})=(x_{itg}-{\overline{x}}_{•g}{)}^{\prime }\beta +({\in }_{itg}-\stackrel{•g}{\in })$, where the notation ${\bar{z}}_{\bullet g}$ represents the average of $z$ for group $g$.

7. Molina-Azorin et al. (2009) also studied the relationship between environmental practices and other performance metrics such as gross operating profit (GOP), competitive performance, and stakeholder satisfaction, some of which are estimated and others are based on subjective opinions of hotel managers. For instance, GOP is measured using 10 intervals on which hotel managers had to rate their establishment. Competitive performance and stakeholder satisfaction are measured on an adapted scale of 1–7 (1 indicates ‘much worse than competitors’’ and 7 indicates ‘much better than competitors.’).

8. Based on search results on TripAdvisor.com on 10 December 2017.

9. The data regarding the popularity ranking of cities in California were collected from TripAdvisor.com.