Climate Change Exposure and Capital Allocation in Tourism Firms

Drawing on Dynamic Capabilities and Institutional theories, this paper examines how climate change exposure influences capital allocation in tourism, a spatially immobile and climate-sensitive industry. Using a global panel of 420 publicly listed tourism firms from 2001 to 2024, we employ the Least Absolute Shrinkage and Selection Operator and double-selection methods. The findings show that higher climate exposure increases capital expenditure, consistent with place-bound adaptive investment. This relationship strengthened after the Paris Agreement, underscoring the role of credible climate policy coordination. Stronger national legal institutions reinforce the relationship, whereas higher public climate awareness weakens it. Decomposing climate exposure reveals heterogeneity: opportunity and regulatory exposure increase capital expenditure, while physical exposure reduces it. These findings demonstrate how climate-related risks and opportunities reshape capital allocation in spatially immobile industries and highlight the importance of credible policy implications in encouraging long-term adaptive investment by tourism firms.