Workforce quality and investment inefficiency of hospitality and tourism firms

Purpose The current research investigates the effect of workforce quality, namely employee-friendly human resource (HR) practices, on investment inefficiency of hospitality and tourism (HT) firms. This study also explores whether board structure and environmental, social and governance (ESG) performance moderate the relationship between workforce quality and investment inefficiency. Design/methodology/approach Using a multi-dimensional categorical score of workforce quality for HR practices, this study employs fixed-effects regression estimation to test the main and moderating effects. The sample included 523 firm-year observations from 68 publicly traded HT companies between 2002 and 2022. Findings The results show that investing in workforce quality decreases investment inefficiencies in HT firms. Our findings further suggest that the reduction in investment inefficiency due to better workforce quality is more pronounced in firms with smaller boards, fewer independent directors and low ESG performance. Research limitations/implications This research contributes to the limited literature on the determinants of investment in(efficiency) by evidencing the significant role of workforce quality. Moreover, the present research provides support for adopting the contingency perspective to understand the link between employee-friendly HR practices and investment inefficiency. The findings also offer valuable implications for managers, policymakers and investors to guide their decisions. Originality/value By integrating instrumental stakeholder theory and social exchange theory, this study provides the first empirical evidence for the negative effect of workforce quality on investment inefficiency in HT firms and introduces three moderating factors on the nexus between workforce quality and investment inefficiency.