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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.

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