The Ownership Structure, and the Environmental, Social, and Governance (ESG) Disclosure, Firm Value and Firm Performance: The Audit Committee as Moderating Variable

Round 1

Reviewer 1 Report

 

The paper attempts to examine empirically several aspects of the functioning of the companies listed on the Indonesia Stock Exchange, including:

1)     the impact of ownership structure on the ESG disclosures,

2)     the impact of ESG disclosures on firm value and financial performance,

3)     and the moderating impact of the size of audit committees on the above mentioned relationship between ESG disclosures and firm value and financial performance.

Despite ambitious and broad scope of the investigation, the overall scientific soundness of the paper and the research design adopted by the Authors raise some serious doubts:

·       The title of the paper is not clear, as a noun is missing after the word 'governance', and too many variables seem to be listed there. The Authors should reformulate it, so as to make it more precise, clear, and appealing to the readership of the journal. Moreover, the current version of the title suggests that the Authors investigate the influence of ownership structure on firm value and performance, which has not been done in the paper.

·       Throughout the paper, including its very title, the Authors use the phrase 'environmental, social, and governance' without any noun afterwards which makes it quite hard to understand what exactly they are referring to (see e.g. lines 12-15, 47, 67, 92, 107, 122, 136, 165). This is particularly important in the context of hypothesis formulation and the overall methodological framework of the study, as it is unclear what the Authors intend to investigate exactly and what measures they use.

·       In lines 26-27 following Seele and Gatti the Authors argue that  ‘Sustainability reports relate to green-washing strategies aimed to manage stakeholder perceptions’ – this, however, is a very one-sided view and it is strongly recommended to provide more balanced and objective arguments on the subject.

·       In lines 59-60 the Authors argue that: ‘Academics can use the same theory or different theories to publish their research on the same topic’ – this notion seems rather obvious and trivial, which makes it redundant.

·       The literature review is focused almost exclusively on emerging markets. It would be advisable, however, to extend it onto examples of studies from more developed economic settings. Moreover, currently it seems quite chaotic and fragmented, as the Authors often refer to the results of prior studies with completely contradicting outcomes without providing any comments on the reasons for such state of art. Additionally, some fragments of the literature review are providing additional details about the investigated samples while others are reduced to mere constatation of the ultimate results, which in sum leaves the impression that different paragraphs have been written by different persons, and nobody has taken care to unify the style and detailedness of the text throughout this section.

·       The development of hypotheses is very superficial as the Authors usually only list the results of prior studies (which are usually contradictory by the way) without any attempt to provide some in-depth justification for the expectations about the likely direction of the investigated relationships.

·       In section 2.2. the Authors should explain directly what they mean by the term 'public ownership', especially as in the relevant literature it is commonly used as a substitute for 'state ownership'. Even though it can be presumed that the term is used in the sense of ownership dispersion across many investors, it should be explicitly clarified in this section.

·       Similarly, in section 2.6. the Authors should clearly state what kind of ‘performance’ they are discussing and how it is going to be measured.

·       The content of Table 1 indicates that the Authors use the ‘ESG Score’ to measure the quality of ESG disclosures, however, no details regarding that ‘score’ are provided in the paper.

·       In line 232 the Authors refer to 'path diagram above', however in the current version of the paper no such diagram is present. Moreover, the Authors should include such diagram not only in section 3, but also in section 4 to visualize the results of PLS-SEM estimations, including R squares they are referring to in lines 331-332.

·       In lines 254-276 instead of highlighting the most important findings, the Authors basically repeat the content of Table 3.

·       The aforementioned methodological inconsistencies affect the quality of both discussion and conclusions of the paper. As regards the discussion section, the Authors should significantly extend the argumentation and justification of the findings in connection with the prior evidence in the relevant literature. In turn, the practical implications provided currently in the conclusions section appear to be very weakly related to the actual findings of the paper.

·       Finally, the poor quality of the English language used in the paper often makes it hard to read and understand. Thus, the paper requires a thorough and profound proof reading with respect to wording, grammar, and style.

 

To sum up, the current version of the paper does not meet the necessary standards of academic publishing and requires a further elaboration in terms of both coherence of the research design and language quality.

Author Response

1. We have revised the title of the paper
2. We have revised the research Hypothesis
3. We removed related pages 26-27 at Seele and Gatti. We added related ESG.
4. 59-60 The authors argue that: 'Academics can use the same theory or different theories to publish their research on the same topic' we deleted.
5. In section 2.2. Public ownership is share ownership owned by the public, including individual or the community. 2.3. State ownership is company shares owned by the state.
6. 6 Firm performance use ROA (Return on Assets) in measuring variable.
7. ESG scores seen from financial reports and sustainability reports by looking at For instance, environmental scores are based on firm disclosure on climate change policies, hazardous wastes, nuclear energy and sustainability indicators, among others; social scores are based on consumer protections, diversity, human rights, animal rights, welfare, child labour, and employee health and safety indicators, among others; and governance scores are based on management structure, diversity, executive compensation and conflict of interest indicators, among others.
8. 232 Author referring to this 'path diagram above' has been removed. We have been presented the PLS results.
9. We have revised the research implications in the conclusions.

 

We have revised the paper in accordance with the suggestions from the reviewers.

Thank you very much

Best Regards

Authors

Reviewer 2 Report

This study examines the relationship among ownership structure and environmental, social, and governance disclosure, firm value, firm performance, and audit committee as a moderating variable in Indonesian context. It uses structural equation modeling and derives several significant results. It seems to have serveral points to be developed more. Belows are my comments.

1. The reason why the author uses a structural modeling to identify the relationship is necessary. Explanation of latent variable is required. A direct relationship can be derived from other methods. 

2. A causal relationship is important in economy. But hypothesis refer to only affection. causality test is required.

3. There are some indicators to affect a firm value. Those variables should be included to control the result.

4. ESG score does not mean the disclosure activity. The author mixed up score & disclosure.

minor

1. data description table is required

2. in 3.3, A diagram is not found

 

Author Response

1. We have been added the explanation related to the Structural equation model in section 3.3 method of analysis.
2. We have been revised the hypothesis.
3. The control variables in this study are company size and leverage.
4. The ESG score is related to the measurement of the variable. ESG scores seen from financial reports and sustainability reports by looking at For instance, environmental scores are based on firm disclosure on climate change policies, hazardous wastes, nuclear energy and sustainability indicators, among others; social scores are based on consumer protections, diversity, human rights, animal rights, welfare, child labour, and employee health and safety indicators, among others; and governance scores are based on management structure, diversity, executive compensation and conflict of interest indicators, among others.
5. We have been added the table of descriptive statistic and figure of the research results. 

We have revised the paper in accordance with the suggestions from the reviewers.

Thank you very much

Best Regards

Authors

Reviewer 3 Report

According to the review of the literature for hypotheses 1 to 6, it is mostly clear that we expect an effect. However, the direction of the effect is not always explicitly explained in the mentioned researches. It would make sense to write down unequivocally what direction of effect we expect for each hypothesis and why, and also write down the expected direction of influence in the hypotheses.

Author Response

We have revised all the hypotheses in our study especially hypothesis 1 to hypothesis 6. Thus, the effect of the hypothesis is further clarified.

We have revised the paper in accordance with the suggestions from the reviewers.

Thank you very much

Best Regards

Authors

Reviewer 4 Report

After deeply reviewing this work, I found several weaknesses driving me to reject it. First, the topic is not clear and should be revised. Why did not explain the gap in the research and also policy implications in the abstract? Second, the literature review is not updated and should be included the studies focusing on the firm's performance determinants (e.g., the nexus between political risk, global economic policy uncertainty, institutional quality, and the firm's profitability). Third, the estimated models are not corrected and suffer from missing the potential determinants of firms' performance and firms' value. Ignoring them leads to finding inconsistent and biased estimation results. Fourth, the authors should be explained why prefer to use structural equation modelling to estimate the models. Why not the static or dynamic approaches? Fifth, where is the descriptive statistics of variables? The unit root test? And the causality test? Sixth, the policy implications should be explained clearly from each stakeholder's view int he conclusion section.

Author Response

1. The topic of this research is to investigate related to social environment and governance. The independent variable is the ownership structure including the foreign, public, state and family ownership.
2. This study focuses on two dependent variables include firm value and firm performance.
3. The research model is moderated by the audit committee.
4. On the 265-273, We explain the structural equations model.
5. We have been added the Descriptive statistics and the result of research.
6. The research implications have been described in the conclusions.

 

We have revised the paper in accordance with the suggestions from the reviewers.

Thank you very much

Best Regards

Authors

Round 2

Reviewer 1 Report

Although the Authors claim to have addressed all the issues raised in the first-round review the overall scientific soundness and quality of the revised version of paper seem not sufficient to enable its publication in the journal.

1.     Although the title of the paper has been changed it is still not grammatically correct and still unclear.

2.     The phrase 'environmental, social, and governance' is still used throughout the paper without any noun afterwards which makes it quite hard to understand which dimension of ESG the Authors are referring to (see lines 6, 12-15, 48, 53, 102, 107, 108, 109, 111, 112, 130, 131, 133, 134, 146, 151, 152, 153, 155, 156, 172, 173, 207, 209, 218, 228, 246, 248, 261, 263, 295, 316, 336, 340, 342, 345, 346, 348, 351, 354, 358, 359, 360, 364, 366, 367, 372, 373, 376, 377, 379, 381, 386, 388, 392, 394, 396, 402, 403, 406, 408, 410, 415, 419, 420, 427, 430, 432, 433, 435, 436, 465, 474, 477). In particular, in many paragraphs and sentences of the paper it is unclear whether the Authors are referring to ESG performance of the listed companies or their ESG information disclosure, which is very confusing for the reader.

3.     In Sections 2.1-2.6 the Authors have added more details about the samples investigated in prior studies, however, the text is still very fragmented and chaotic, especially as the Authors seem to focus primarily only on the empirical results, often without providing the details of the underlying theoretical background of the discussed relationships. Moreover, as the Authors usually refer to contradictory results of prior studies it is often difficult to follow the logic that led to ultimate formulation of the related hypotheses.

4.     Section 2.6 still does not explain what kind of ‘performance’ the Authors intend to investigate and how exactly they are going to measure it.

5.     The constructed research model (see line 269) is ignoring the impact of firm’s financial performance on its market value, which might have resulted in biased estimates of the investigated relationships.

6.     The revised version of the paper still does not provide any details on “ESG score” given in Table 1 and further used in empirical estimations, which is essential for understanding the methodological framework of the paper.

7.     In Table 1 the Authors introduce additional control variables even though they were not included previously in the design of the research model and no argumentation on their likely impact is provided.

8.     The text in lines 333-355 is still generally repeating the content of Table 3, instead of focusing on the most important results and their interpretation.

9.     In lines 418-423 the Authors argue that: “The results of the analysis (Table 3) show the R Square (R²) value of 0.32 for environmental, social, and governance, 0.27 for firm value and 0.23 for firm performance. This means that 28% of the environment, social and governance are influenced by foreign ownership, public ownership, state ownership and family ownership, while 68% of the variables are influenced by other variables outside the variables that have not been studied in this study.”

First, there is some inconsistency in the reporting of the results, as the value of 28% has not been updated. Second, the Authors seem to forget that they have introduced additional control variables in the model (size and leverage) that naturally also affect the obtained R².

10.  Despite some improvement in the quality of English language, the paper still requires a thorough proof reading with respect to grammar, wording, and style. (see e.g. line 63: ‘structure’ instead of ‘structured’; line 90: ‘effects instead of ‘affects’; line 218: ‘affects’ instead of ‘affect’).

Author Response

1. We have revised the title
2. Our research investigated Environmental, Social and Governance disclosure. We already add a paragraph discussing this in the Introduction in the third paragraph
3. We have revised the hypothesis 2.1-2.6
4. We have added a way to measure firm performance lines 250-251.
5. We focus on investigating the firm performance and firm value, but our results show that environmental, social, and governance disclosure positively impact firm value but not firm performance
6. We have added regarding ESG score line 328-335
7. We have presented the results of the control variables in the discussion section of the second last paragraph on lines 464-468.
8. We revise the presentation of table 3 to become Table 4 on lines 389-399.
9. We have revised the numeric error in our paper on the last paragraph in the discussion on line 469-475

10. We have revised, and proofread of English writing in our paper

Thank you very much

Best Regards

Authors

Author Response File: Author Response.pdf

Reviewer 2 Report

1. Ownership does not affect ESG in one way.
High ESG can increase higher foreign investment. It should consider mutual relationship in hypothesis.

2. control variables including ownership can directly influence firm value & performance.
It is not sure SEM can control this kind of problem.



   

Author Response

1. Our research only focuses on the one-way effect, i.e., for example, foreign ownership has a positive effect on environmental, social and governance disclosures. We present the research objectives in the abstract
2. The control variables in our study only affect the environment, social and governance disclosure, not the company's performance and company value. We have presented the results of the control variables in the discussion section of the second last paragraph on the line 464-468.

Thank you very much

Best Regards

Authors

Author Response File: Author Response.pdf

Reviewer 4 Report

I still have the concern to update the literature review by focusing on the recently published research about the financial and non-financial firms' performance determinants such as political risk, global economic policy uncertainty, governance quality, regulatory settings, and many more. You could add in the research limitation the lack of these determinants and suggesting to include for further studies.

Author Response

We have added in the conclusions section the limitations of the study and suggestions for previous research on lines 528-531.

Thank you very much

Best Regards

Author Response File: Author Response.pdf

Round 3

Reviewer 1 Report

 

1. The title of the paper is still grammatically incorrect.

2. Despite some corrections the phrase 'environmental, social, and governance' still happens to be used without any noun afterwards (see lines 15; 262).

3. Many parts of literature review still remain fragmented and chaotic (see e.g. lines 194-200). Moreover, mixed results of prior studies reported by the Authors often do not offer convincing support for the ultimate formulation of research hypotheses.

4. Hypothesis H6 in the revised version of the paper has been formulated in the following way: 'Environmental, social, and governance (ESG) disclosure positively affects firm performance.' In section 2.6. the Authors do not provide, however, any reasonable argumentation to support logically the implied positive impact of ESG information disclosure on ROA (which has been adopted as a measure of firm performance).

5. In lines 328-330 the Authors argue: 'This research uses ESG score to measure environmental, social, and governance disclosure ESG scores are obtained from financial reports and sustainability reports by looking at.' – it seems, however, that this sentence has not been finished. Further in lines 330-335 they explain that: 'For example, environmental scores are based on company disclosures on nuclear energy policies, hazardous waste, climate change, and sustainability indicators; social scores are based on human rights, consumer protection health indicators, diversity, welfare, and employee safety, among others; and governance scores are based on executive compensation, diversity, management structure, and conflict of interest indicators, among others.' 

The details of the very 'ESG score' employed in the study are, however, still not provided. The Authors only argue that the measure expressed in percentage numbers, but it is not clear how exactly the investigated companies have been assessed in this respect over the examined period. In particular, it is not clear whether the Authors have assessed the particular ESG scores on their own or used the Bloomberg's data as in the study by Atif et al. (2022) which they refer to in Table 1.

6. Although the Authors claim that the revised version of the paper has again been proofread the text is still full of grammatical and stylistic errors (see e.g. lines 16-18; 47-48; 72; 83-84; 127; 215-216).

To sum up, in my opinion, both the overall scientific soundness and linguistic quality of the paper remain insufficient to allow its publication in the journal.

Author Response

1. We have revised the title.
2. We have revised the phrase become “environmental, social and governance disclosure”.
3. We have revised the hypothesis 2.1-2.6
4. We have revised 2.6 and refer the previous research.
5. We have revised the measurement of ESG disclosure refer the ESG score. We used the IDX or Indonesian capital market directory (idx.co.id; idxchannel.com). We refer Global Reporting Initiatives

6. We have proofread our paper from Professional proofread.

Thank you very much

Author Response File: Author Response.pdf

Reviewer 2 Report

well revised.

Author Response

Thank you very much

Reviewer 4 Report

First) The title of the work is not clear and it's too long. 

Second) There are several factors such as political risk, economic policy uncertainty, regulatory settings, and many more that impact firms' performance. I suggest adding these variables as a limitation of this study and suggest using them for further studies such as A) Athari, S. A., & Bahreini, M. (2021). The impact of external governance and regulatory settings on the profitability of Islamic banks: Evidence from Arab markets. International Journal of Finance & Economics. B) Athari, S. A. (2021). Domestic political risk, global economic policy uncertainty, and banks’ profitability: evidence from Ukrainian banks. Post-Communist Economies, 33(4), 458-483. Third) I suggest adding briefly policy implications in the abstract. 

 

Author Response

1. We have revised the title.
2. We have revised future research and refer Athari (2021) and Athari & Bahreini (2021)
3. We have revised the abstract.

Thank you very much

Author Response File: Author Response.pdf

Round 4

Reviewer 1 Report

 

The revised version of the paper has been significantly improved in terms of key aspects of scientific soundness, especially as regards the development of hypotheses and discussion of results. In general, however, two major issues remain unsolved.

 

First, given the explanations provided in lines 306-310, it seems that the Authors have calculated the 'ESG scores' on their own, unlike Atif et al. (2022) who used the scores published by Bloomberg. The Authors, however, still remain silent about the exact methodology of calculating those scores, except from a very general description of the criteria taken into account in that respect. Given the central role of 'ESG scores' in the proposed research framework, however, the lack of the above mentioned details makes the investigation not transparent and raises further doubts about the validity of the obtained results.

 

Second, the manuscript still requires an extensive proof reading and editing with respect to grammar (see e.g. lines 87, 142, 230, 442), wording (see e.g. 'disclosed' in line 129, 'responses' in line 228 ), repetitions (lines 233-234), nouns missing after the word ‘governance’ (lines 153, 274, 353, 465), or logical coherence (see e.g. lines 87-99). Generally, the writing style remains quite poor, and certainly inadequate for a professional scientific journal. Given the above I would strongly suggest having it proofread by a native English speaker.

 

 

Author Response

1. We do content analysis to measure environmental, social and governance disclosure. This measurement refer Global reporting initiative (GRI, 2013). The content analysis refer (Al Amosh et al., 2022).  The ESG score based on Bloomberg refer Global reporting Initiative as well.
2. We have proofread our paper

Thank you very much.

Author Response File: Author Response.pdf

Reviewer 4 Report

The revised version is accepted for publishing in the current form.

Author Response

Thank you very much

Author Response File: Author Response.pdf

Round 5

Reviewer 1 Report

 

As regards the quality of language, despite some corrections many of the formerly mentioned errors are still present: e.g. line 88 (‘to affects’), line 143 (‘dan’), line 230 (‘be commensurate’), line 229 (‘companies’ performance poorly’), nouns missing after the word ‘governance’ (lines 102, 150, 178), and the numerous stylistic issues – see e.g. lines 233-234: ‘This study is similar to the previous research measures the firm’s performance using ROA’ Given the above, I still do recommend having the paper proofread by a native English speaker.

As regards the measurement of ‘ESG scores’, although the Authors explain that they have employed a content analysis of financial and sustainability reports of the examined companies to assess them with respect to GRI guidelines (see lines 308-311), still no details of the exact procedure have been disclosed in the paper. It is therefore not clear how many individual dimensions of ESG disclosure have been taken into account and how they affect the ultimate scores, in particular whether the Authors have employed some weights or other approaches to differentiate between them, or if they assume that every aspect is equally important. Without such details the potential readers of the paper cannot fully understand the proposed research framework (e.g. what are the conditions of receiving the maximum score of 100 points), and hence they might have doubts about the correctness of the Authors’ conclusions.

Author Response

1. We have proofread our paper
2. We have revised the measurement of Environmental, Social, and Governance Score.

Thank you very much.

Author Response File: Author Response.pdf

Round 6

Reviewer 1 Report

 

Since the Authors have enhanced the description of the 'ESG score' employed in the paper it is now generally more transparent to the readers. In my opinion, however, more details on the exact components of the measure and their weights are strongly advisable to avoid doubts about the objectivity of the results.

 

Although some of the linguistic issues have been corrected, the paper still requires a thorough proof reading with respect to grammar and style – see e.g. line 232: ‘The previous study use ROA to measure firm performance…,’ line 236: ‘Environmental, social, and governance disclosure positively influence…’. Given the above, as several times before, I still do recommend having the paper proofread by a native English speaker.

 

Author Response

1. We have disclosed the components measured in the ESG score in our revised previous paper #5. We have explained all the dimensions including the environmental dimension, social dimension and governance dimension on page 8 lines 301-317.
2. We have proofread our paper

Thank you very much.

Author Response File: Author Response.pdf