Impact of Environmental, Social, and Governance Parameters on Financial Performance of Firms: A Cross-Country Analysis

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

 

Dear Authors,

I appreciate the opportunity to review the paper “Impact of Environmental, Social and Governance Parameters on Financial Performance of Firms: A Cross Country Analysis”. Although the topic may be interesting, I have some serious concerns that are summarized below.

1. The introduction section should clarify the research problem, the gap in the literature and the implications, and explain the research result. The introduction is very weak since the authors are not considering all these issues. Thus, the authors must fully articulate these issues and incorporate them into the introduction section.

2. The research questions are clearly stated, but the introduction could benefit from further refining the problem statement other than the lack of studies on this topic.

3.      The authors should discuss the theoretical perspectives chosen. In this regard, I would suggest adding a new section related to theoretical frameworks.

4.  The hypotheses are insufficiently explained from a theoretical point of view, more direct arguments should be provided to understand the relations proposed.

5.      The research methods employed in the paper are acceptable. Measurement and definition of variables are properly done.

6.  The author did not present the results clearly and the analysis was not appropriate. Thus, I have some concerns:

-  The analysis for Table 3 (Descriptive Statistics) is missing in section 4. In addition, the authors should compare the descriptive analysis in this study with the previous studies.

-  I do not understand why the author used Panel Fixed Effect Model regression to examine the relationship between the firm’s ESG performance score and their financial performance. I suggest using one model based on the diagnostic tests to determine the appropriate model applied to the panel data.

- The authors should expand the robustness or additional analyses section, demonstrating how to control endogeneity issues using estimators (such as the 2SLS model, Heckman selection model and GMM model).

7. The conclusion is short, and authors should expand their arguments by: (i) discussing the empirical, theoretical, and practical implications of their findings; (ii) identifying more limitations; and (iii) providing more suggestions for future research.

8. Some references are cited in-text (e.g., Feb, 2024) but not mentioned in the references list. Please check the references list carefully.

9. Overall, the language is clear, but some parts could benefit from further proofreading to ensure clarity and conciseness, particularly in the introduction and results sections.

 

Comments on the Quality of English Language

 

Overall, the language is clear, but some parts could benefit from further proofreading to ensure clarity and conciseness, particularly in the introduction and results sections.

 

 

Author Response

Reviewer Comments

1. The introduction section should clarify the research problem, the gap in the literature and the implications, and explain the research result. The introduction is very weak since the authors are not considering all these issues. Thus, the authors must fully articulate these issues and incorporate them into the introduction section.

Response 1: Agree. We have accordingly, revised the Introduction.

2. The research questions are clearly stated, but the introduction could benefit from further refining the problem statement other than the lack of studies on this topic.

Response 2: Agree. We have accordingly, revised the motivation section. Please refer to the Introduction section, Para 5, Page 2 [Highlighted in red color font].  

3. The authors should discuss the theoretical perspectives chosen. In this regard, I would suggest adding a new section related to theoretical frameworks.

Response 3: Sure. We have accordingly, revised the review of literature section. Please refer to the paragraph on Theoretical underpinning, Section 2.1., Page 2 [Highlighted in red color font].  

4. The hypotheses are insufficiently explained from a theoretical point of view, more direct arguments should be provided to understand the relations proposed.

Response 4: Agree. We have accordingly, revised the review of literature.

5. The research methods employed in the paper are acceptable. Measurement and definition of variables are properly done.

Response 5: Thanks for the comment. No response.

6. The author did not present the results clearly and the analysis was not appropriate. Thus, I have some concerns:

• The analysis for Table 3 (Descriptive Statistics) is missing in section 4. In addition, the authors should compare the descriptive analysis in this study with the previous studies.
• I do not understand why the author used Panel Fixed Effect Model regression to examine the relationship between the firm’s ESG performance score and their financial performance. I suggest using one model based on the diagnostic tests to determine the appropriate model applied to the panel data.
• The authors should expand the robustness or additional analyses section, demonstrating how to control endogeneity issues using estimators (such as the 2SLS model, Heckman selection model and GMM model).

Response 6: Thank you for pointing these out. We have added the following:

• Revised the explanation of Table 3 as suggested. Please refer to Section 4.1., Page 8 [Highlighted in red color font].
• Revised the Tables 4a & 4b to include Results of Hausman Test. Provided explanation on the same. Please refer to Section 4.1., Page 8 & 9 [Highlighted in red color font].
• A section on Robustness test demonstrating the controlling of endogeneity issues with the use of instrument variables. Kindly refer to Section 4.1., Para 6 including Table 5, Page 10 & 11 [Highlighted in red color font].

7. The conclusion is short, and authors should expand their arguments by: (i) discussing the empirical, theoretical, and practical implications of their findings; (ii) identifying more limitations; and (iii) providing more suggestions for future research.

Response 7: Thank you for pointing these out. We have added the following:

• A separate section on implication of the study. Kindly refer to Section 4.3., Page 12 [Highlighted in red color font].
• Sections on limitation of the present study and suggestions for future research have included in the Conclusion, Section 5, Para 2 & 3, Page 12 [Highlighted in red color font].  

8. Some references are cited in-text (e.g., Feb, 2024) but not mentioned in the references list. Please check the references list carefully.

Response 8: Thank you for pointing this out. We have accordingly revised the Reference section.

9. Overall, the language is clear, but some parts could benefit from further proofreading to ensure clarity and conciseness, particularly in the introduction and results sections.

Response 9: Agree. We have accordingly revised the sections on Introduction (Section 1), and Results, Findings and Discussions (Section 4) providing the necessary explanations and clarification.

Author Response File: Author Response.docx

Reviewer 2 Report

Comments and Suggestions for Authors

 

Dear authors,

This article is a work with a solid scientific impact, as it explores the relationship between companies' ESG (environmental, social, and corporate governance) practices and their financial performance and examines how the country's economic development affects this relationship.

However, I feel it is in an embryonic stage as it needs enrichment, explanation, and interpretation. Please see the comments.

 

DATA AND METHODOLOGY

Line 144-145: I don't understand why Hong Kong was rejected. Is it due to proximity, and if so, what does that mean? Please be more specific.

Line 157-162: After all, which years concern the analysis? I am confused by the way the choice of analysis years is explained.

Line 164-165: By what criteria do you separate the emerging countries? Is there literature support for this?

Table 2. Definitions of variables used in the study: Ten variables are reported in the analysis. I believe you should justify your choice of each based on the literature and explain the expected impact of each on the analysis and research question.

You are referring to models. Explain what models you used, justify their choice.

I recommend writing the models with all the variables you have incorporated and each with the corresponding treatment, eg Ln

What are the Diagnostic Tests for Model Assumptions?

 

FINDINGS AND DISCUSSION

I can't find any text that mentions Table 3 anywhere.

Line 195: Correct Table 41.

There is no explanation for any table in the Results. I strongly suggest that you explain your results.

Please create a new Section called Discussion. This is where the essential interpretation of results and their connection to the literature should be integrated.

 

General Comments

·       The writing style could be more complex and informal, so the meaning is often lost.

·       There are sentences in which you cite a reference without additional information. For example line 192 This is in accordance to Gholami et al. (2022). I strongly suggest developing the proposals and explaining what the reference contributes to each case. I would expect a rich text with important information with the bibliography referred to.

 

· I feel like the authors did a statistical analysis and just put the tables in a Word file. However, an article is much more than that. There is almost no text; of course, interpretation and bibliography, the most essential components of an article, are severely lacking.

 

Comments on the Quality of English Language

·       The writing style is poor, so the meaning is often lost.

Author Response

Reviewer Comments

1. DATA AND METHODOLOGY

• Line 144-145: I don't understand why Hong Kong was rejected. Is it due to proximity, and if so, what does that mean? Please be more specific.
• Line 157-162: After all, which years concern the analysis? I am confused by the way the choice of analysis years is explained.
• Line 164-165: By what criteria do you separate the emerging countries? Is there literature support for this?
• Table 2. Definitions of variables used in the study: Ten variables are reported in the analysis. I believe you should justify your choice of each based on the literature and explain the expected impact of each on the analysis and research question.

Response 1: Thank you for pointing these out. We have added the following:

• Explanation for the exclusion of Hong Kong with literature references. Kindly refer to Section 3.1., Para 2, Page 5 [Highlighted in red color font].
• Elaboration on the choice of period of study has been provided in Section 3.1. Para 4, Page 5 [Highlighted in red color font].
• Explanation on the group affiliation of countries included in the study with literature references. Kindly refer to Section 3.1., Para 2, Page 5 [Highlighted in red color font].
• On the choice of variables for the study, explanation on the expected impact and literature references has been included. Kindly refer to Section 3.1., Table 2, Page 5 & 6  [Highlighted in red color font].

2. You are referring to models. Explain what models you used, justify their choice.I recommend writing the models with all the variables you have incorporated and each with the corresponding treatment, eg Ln

Response 2: Sure. Elaboration on the regression models used in the study along with literature references has been provided in Section 3.2., Page 7 [Highlighted in red color font].

3. What are the Diagnostic Tests for Model Assumptions?

Response 3: Thank you for the suggestion. A section on Robustness test demonstrating the controlling of endogeneity issues with the use of instrument variables. Kindly refer to Section 4.1., Para 6 including Table 5, Page 10 & 11 [Highlighted in red color font].

4. FINDINGS AND DISCUSSION

• I can't find any text that mentions Table 3 anywhere.
• Line 195: Correct Table 41.
• There is no explanation for any table in the Results. I strongly suggest that you explain your results.
• Please create a new Section called Discussion. This is where the essential interpretation of results and their connection to the literature should be integrated.

Response 4: Thank you for pointing these out. We have added the following:

• Revised the explanation of Table 3 as suggested. Please refer to Section 4.1., Page 8 [Highlighted in red color font].
• Revised the Tables 4a & 4b to include Results of Hausman Test. Provided explanation on the same. Please refer to Section 4.1., Page 8 & 9 [Highlighted in red color font].
• Included separate sections on (1) Discussion on findings. Kindly refer to Section 4.2., Page 11 [Highlighted in red color font].; and (2) Implication of the study. Kindly refer to Section 4.3., Page 12 [Highlighted in red color font].

5. General Comments

• The writing style could be more complex and informal, so the meaning is often lost.
• There are sentences in which you cite a reference without additional information. For example line 192 This is in accordance to Gholami et al. (2022). I strongly suggest developing the proposals and explaining what the reference contributes to each case. I would expect a rich text with important information with the bibliography referred to.
• I feel like the authors did a statistical analysis and just put the tables in a Word file. However, an article is much more than that. There is almost no text; of course, interpretation and bibliography, the most essential components of an article, are severely lacking.

Response 5: Agree. We have accordingly revised the paper.

Author Response File: Author Response.docx

Reviewer 3 Report

Comments and Suggestions for Authors

Dear authors,

This time I read the article with the greatest interest. It is really relevant, it is needed, and it has a promising beginning, but a much-truncated ending. I would like to make a few comments to improve the article:

1. Abstract. 19-20 rows. The idea appeared only in the abstract, but it was not presented in the section on results or conclusions.

2. I didn't understand the exact number of observations. The 161, and 167 rows twice give us the number of 14 389 observations, but I see the 17 253 observations in tables 3, 4a, and 4b. So, what is the exact number? 

3. I recommend numbering the tables in simple numbers: 1, 2, 3, 4, 5, 6... instead of Table 3, 4a, 4b.

4. The paragraph in 204-209  rows about the stakeholder theory is out of context. I think if authors don't talk about theories in the literature review section, therefore it can be avoided theories in the results section also. 

5. As I understand, the authors presented only correlations of selected variables. Therefore, they can conclude only on the relationship between ESG and firm financial performance while making conclusions about ESG's influence on financial performance ( 223, 226 rows). Please be careful using the right terms. 

6. The comments on the results are very short. We need more details of calculations, a discussion of the results, conclusions, and, of course, the limitations of the research at the end of the article, as usual. 

Author Response

Reviewer Comments

1. 19-20 rows. The idea appeared only in the abstract, but it was not presented in the section on results or conclusions.

Response 1: Thank you for point this out. Elaboration on the same has been included (1) in the Discussion on findings. Kindly refer to Section 4.2., Page 11 [Highlighted in red color font]; as well as (2) in the Conclusion. Kindly refer to Section 5, Page 12 [Highlighted in red color font].

2. I didn't understand the exact number of observations. The 161, and 167 rows twice give us the number of 14389 observations, but I see the 17253 observations in tables 3, 4a, and 4b. So, what is the exact number?

Response 2: Thank you for point this out. The error occurred on our part. Although we had decided to exclude Hong Kong from our sample, the working dataset had the leftover data. The oversight happened due to the country names being numerically encoded. Anyways, the updated results are provided in the revised manuscript. It is not be noted that, except for the changes in magnitude (and direction in some cases) in the updated results, the observations, findings and inferences remain consistent. For updated results, kindly refer to Section 4, Tables 4a & 4b, Page 8-10 [Highlighted in red color font].

2. I recommend numbering the tables in simple numbers: 1, 2, 3, 4, 5, 6... instead of Table 3, 4a, 4b.

Response 3: Thank you for the suggestion. Since, Table 4 was split into two parts displaying the results for both the dependent variables, hence the numbering 4a & 4b. Here we have followed the formatting convention of the journal.

3. The paragraph in 204-209  rows about the stakeholder theory is out of context. I think if authors don't talk about theories in the literature review section, therefore it can be avoided theories in the results section also.

Response 4: Thank you for the suggestion. We have elaborated on the same in the review of literature section. Please refer to the paragraph on Theoretical underpinning, Section 2.1., Page 2 [Highlighted in red color font].  

5. As I understand, the authors presented only correlations of selected variables. Therefore, they can conclude only on the relationship between ESG and firm financial performance while making conclusions about ESG's influence on financial performance ( 223, 226 rows). Please be careful using the right terms.

Response 5: Thank you for the suggestion. We have revised our articulation on the same.

6. The comments on the results are very short. We need more details of calculations, a discussion of the results, conclusions, and, of course, the limitations of the research at the end of the article, as usual.

Response 6: Agree. As per suggestion, we have added the following:

• The details of calculations in the Data and Methodology section. Kindly refer to Section 3, Page 4-7 [Highlighted in red color font].
• Revised the sections on Results, Findings and Discussions (Section 4) and Conclusion (Section 5) providing the necessary explanations and clarification.
• Sections on limitation of the present study and suggestions for future research have included in the Conclusion, Section 5, Para 2 & 3, Page 12 [Highlighted in red color font].  

Author Response File: Author Response.docx

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

Thank you for the revisions.

Author Response

Comments and Suggestions for Authors: Thank you for the revisions.

Authors' Response: The authors thank the anonymous reviewer for her/his/their insightful review. We have tried to incorporate all the suggestions.

Reviewer 3 Report

Comments and Suggestions for Authors Dear authors,  Thank you for improving the article according to all remarks. Now, I do not see problematic places. Only one doubt is left for me thinking about this choice: "1766 firm-year observations are from the Emerging Countries group, whereas 12,623 are from OECD+ countries (202-203 rows)." You have studied a very big sample from developed countries and quite a small sample from emerging countries. Therefore, it remains doubtful whether we would have the same results if we added more data from other emerging countries because the world has more than two big emerging countries (China and India), and they can have different results. Please add more arguments as to why you have analyzed so different samples of developed and emerging countries.

Author Response

Comments and Suggestions for Authors: Dear authors, Thank you for improving the article according to all remarks. Now, I do not see problematic places. Only one doubt is left for me thinking about this choice: "1766 firm-year observations are from the Emerging Countries group, whereas 12,623 are from OECD+ countries (202-203 rows)." You have studied a very big sample from developed countries and quite a small sample from emerging countries. Therefore, it remains doubtful whether we would have the same results if we added more data from other emerging countries because the world has more than two big emerging countries (China and India), and they can have different results. Please add more arguments as to why you have analyzed so different samples of developed and emerging countries.   Authors' Response: Dear reviewer, kindly note that the span of the study is between 2013 and 2022. The period is important because the ESG score, we use for measurement, is made available by Bloomberg from 2013 onward and has complete data for the chosen sample till 2022. However, for the mentioned period, firms from other big emerging nations like Brazil, Indonesia, Russia, South Africa and others, failed to feature in the sample due to the lack of consistent and complete firm-level data as available in the Refinitiv (Thompson Reuters) database. We have mentioned this fact both in the Data section as well as in the Conclusion section in the paper where discuss limitations of the study and scope of future research. The authors thank the anonymous reviewer for her/his/their insightful review. We have tried to incorporate all the suggestions.