Disclosure of Sustainability Practices in Annual Reports and the Funding Cost of Cooperative Financial Organizations

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Dear authors, kindly be aware of the following areas for improvement:

1. The meaning, types, and nature of sustainable practices are not fully introduced and developed in the introduction and literature review sections. You need to work extensively on this area especially at the beginning of the paper so that readers can fully understand the purpose of your paper.
2. You have engaged in the quantitative part of your method without having a clear qualitative description, which in my opinion is very significant especially when addressing corporate practices and links to Key Performance Indicators. I highly recommend complementing your findings and results with some qualitative insight.
3. The paper is highly theoretical and therefore you need to raise the level of its practicality by discussing in more detail the need and the role for sustainable development within CFOs and who to elevate managers' mindsets towards achieving higher levels of sustainable practices.
4. You also need to compare these practices with similar organizations operating in similar areas of business in order to provide some sort of benchmarking and compliance to best practices. 

Author Response

Coomments 1: The meaning, types, and nature of sustainable practices are not fully introduced and developed in the introduction and literature review sections. You need to work extensively on this area especially at the beginning of the paper so that readers can fully understand the purpose of your paper.

Response 1: Thank you for your contribution. These aspects have been incorporated into the text of the study. The adjustment is between lines 7 and 26 on page 2.

Coomments 2: You have engaged in the quantitative part of your method without having a clear qualitative description, which in my opinion is very significant especially when addressing corporate practices and links to Key Performance Indicators. I highly recommend complementing your findings and results with some qualitative insight.

Response 2: Thank you very much for your contribution. The qualitative insights were already present in the introduction, on page 2, between lines 38 and 41, and in the results section, on page 15, between lines 18 and 20. However, additional content has been incorporated into the results. The adjustment is between lines 2 and 10 on page 15.

Coomments 3: The paper is highly theoretical and therefore you need to raise the level of its practicality by discussing in more detail the need and the role for sustainable development within CFOs and who to elevate managers' mindsets towards achieving higher levels of sustainable practices.

Response 3: Thank you for your contribution regarding this point. This adjustment has been added to the results section. The adjustment is between lines 2 and 10 on page 15.

Coomments 4: You also need to compare these practices with similar organizations operating in similar areas of business in order to provide some sort of benchmarking and compliance to best practices.

Response 4: Thank you very much for your contribution from this perspective. Comparisons with banks have been added to the results section. The adjustments are throughout page 14 and between lines 1 and 10 on page 15.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

The paper is well-structured and deals with a very topical subject that makes an important contribution to academia and society.

The authors study the level of disclosure of information about sustainability practices, form the perspective of stakeholders, and its relationship with the cost of financing of cooperative financial organizations.

The objective of the paper is clearly defined, and the methodology adopted is appropriate. Also presents a good literature review supported by very up-to-date and high-quality publications.

 

However, a few corrections are suggested:

 

• The authors should highlight the research gap, reinforcing the study’s contributions.
• In page 4, 3^rd paragraph, the authors write “Even though limited, empirical evidences suggests that….”. The authors should identify the studies that prove these evidences.
• The econometric model contains many control variables, and no explanation is given for the choice of these variables. The authors present only a list of studies that have used these variables in Table 1. We suggest the introduction of a brief explanation for the choice of these control variables. Maybe some of these variables could give rise for the formulation of further research hypotheses.
• The authors should explain the option for the research period. The Covid pandemic occurred during this period, which could have had an impact on the results. Did the authors study this effect?
• Table 6 presents the descriptive statistics. It is suggested that the presentation of the results for dummy variables be revised, in order to align with the authors conclusions presented in the following paragraph (the authors should present the number of entities audited by Big 4 and the number of entities based on OECD countries).
• The authors present as a limitation of the study the fact that they used “sustainability indicators to the perspective of Brazilian members, which may limit the applicability of the results to other contexts”. However, the study is based on organizations located in different countries other than Brazil, so this limitation is not noticeable.
• The authors should revise the bibliographical references: is Anakpo et al., 2023 (as referred in the text) or 2024 (as in the references list)?; when citing 3 authors, either put the names of the 3 authors or use the expression et al. (should be consistent); there are some references in the list of references that were not cited in the paper (Bollas Araya et al., 2014; Mathuva, 2016; Thomas & Marinangeli, 2016).

Author Response

Comments 1: The authors should highlight the research gap, reinforcing the study’s contributions.

Response 1: Thank you for your contribution. This aspect has been incorporated into the introduction of the study. The adjustment is between lines 14 and 18 on page 3. 

Comments 2: In page 4, 3rd paragraph, the authors write “Even though limited, empirical evidences suggests that….”. The authors should identify the studies that prove these evidences.

Response 2: Thank you very much for your contribution. This point has been addressed in the text of the study. The adjustment is between lines 44 and 49 on page 3.

Comments 3: The econometric model contains many control variables, and no explanation is given for the choice of these variables. The authors present only a list of studies that have used these variables in Table 1. We suggest the introduction of a brief explanation for the choice of these control variables. Maybe some of these variables could give rise for the formulation of further research hypotheses.

Response 3: Thank you for your contribution regarding this aspect. In the methodology section, a new subsection titled '3.1.3 Control Variables' was created to provide a more detailed description of the selection of each variable. The adjustment is between pages 6 and 8.

Comments 4: The authors should explain the option for the research period. The Covid pandemic occurred during this period, which could have had an impact on the results. Did the authors study this effect?

Response 4: Thank you for your contribution. This effect was not examined and has therefore been added as a limitation of the study. The adjustment is between lines 11 and 12 on page 16.

Comments 5: Table 6 presents the descriptive statistics. It is suggested that the presentation of the results for dummy variables be revised, in order to align with the authors conclusions presented in the following paragraph (the authors should present the number of entities audited by Big 4 and the number of entities based on OECD countries).

Response 5: Thank you for the observation. The text below Table 6 indicates the existence of 21 entities based in OECD member countries.

Comments 6: The authors present as a limitation of the study the fact that they used “sustainability indicators to the perspective of Brazilian members, which may limit the applicability of the results to other contexts”. However, the study is based on organizations located in different countries other than Brazil, so this limitation is not noticeable.

Response 6: Thank you for the observation. However, we acknowledge this as a limitation, as the sustainability indicators were validated by Brazilian cooperative members. It is possible that cooperative members from other countries may consider other sustainability-related information—absent from this study—to be relevant. 

Comments 7: The authors should revise the bibliographical references: is Anakpo et al., 2023 (as referred in the text) or 2024 (as in the references list)?; when citing 3 authors, either put the names of the 3 authors or use the expression et al. (should be consistent); there are some references in the list of references that were not cited in the paper (Bollas Araya et al., 2014; Mathuva, 2016; Thomas & Marinangeli, 2016).

Response 7: Thank you for your contribution. The corrections to the citations and references have been made. The adjustment is between pages 16 and 18.

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

The paper presents a study on the relationship between ESG disclosure and the cost of funding in financial cooperatives. As such, the topic is well chosen and interesting. Following the authors, I would like to emphasise that in the case of cooperatives, social responsibility plays a crucial role.

The paper presents the study in a very clear and concise way, which I consider to be its advantage. I have only 4 comments that could improve the presentation and reach a wider audience:

1. Sample size. The authors choose the FGLS method and give reasons for this choice. However, due to the rather small (or medium-small) sample size, it would be much more transparent for the reader to see the detailed results of the heteroskedasticity and autocorrelation tests that the authors claim to have carried out. This will allow us to judge for ourselves whether the sample size is sufficient for FGLS.
2. Non-linear model. The authors emphasize the non-linearity of their results even in the abstract ("with a minimum point of 0.7873133"). However, in the text they do not provide convincing evidence for a non-linear relationship. The relevant coefficient is insignificant. Could you provide more evidence for non-linearity? I do not see any.
3. Control variables. Model (1) includes several control variables without sufficient explanation (in Table 1, not all of the papers cited are adequate, i.e. they do not refer to the problem or present a model of the determinants of the cost of capital or funds, or a similar study). The problem is that the topic of cost of capital in banks, which is a very similar question, has been studied and presented in many papers. In my opinion, you have missed many appropriate variables, both micro (such as size) and macro (CPI or inflation in the appropriate economy) that could influence and improve your model. The model should borrow more from studies on the cost of capital in banks.
4. The main independent variable. Your main variable LDS is a composite variable. In my opinion, you could disaggregate it to show which element of the sustainability disclosures influences the cost of funding more. Maybe, after all, the relationship only holds because of the financial (economic) disclosures.

 

Author Response

Comments 1: Sample size. The authors choose the FGLS method and give reasons for this choice. However, due to the rather small (or medium-small) sample size, it would be much more transparent for the reader to see the detailed results of the heteroskedasticity and autocorrelation tests that the authors claim to have carried out. This will allow us to judge for ourselves whether the sample size is sufficient for FGLS.

Response 1: Thank you very much for your contribution. Based on your observation, I acknowledged the limitation of the FGLS estimator for small samples. Therefore, I revised the econometric model and adopted the random effects estimator with cluster-robust standard errors. The adjustment is described in detail in sections ‘3. Research Design’ and ‘4. Results’.

Comments 2: Non-linear model. The authors emphasize the non-linearity of their results even in the abstract ("with a minimum point of 0.7873133"). However, in the text they do not provide convincing evidence for a non-linear relationship. The relevant coefficient is insignificant. Could you provide more evidence for non-linearity? I do not see any.

Response 2: Thank you for your contribution. With the change in the econometric model, no non-linear relationship was identified. The adjustment is described in detail in sections ‘3. Research Design’ and ‘4. Results’.

Comments 3: Control variables. Model (1) includes several control variables without sufficient explanation (in Table 1, not all of the papers cited are adequate, i.e. they do not refer to the problem or present a model of the determinants of the cost of capital or funds, or a similar study). The problem is that the topic of cost of capital in banks, which is a very similar question, has been studied and presented in many papers. In my opinion, you have missed many appropriate variables, both micro (such as size) and macro (CPI or inflation in the appropriate economy) that could influence and improve your model. The model should borrow more from studies on the cost of capital in banks.

Response 3: Thank you for your contribution regarding this aspect. In the methodology section, a new subsection titled '3.1.3 Control Variables' was created to provide a more detailed description of the selection of each variable. The adjustment is between pages 6 and 8.

Comments 4: The main independent variable. Your main variable LDS is a composite variable. In my opinion, you could disaggregate it to show which element of the sustainability disclosures influences the cost of funding more. Maybe, after all, the relationship only holds because of the financial (economic) disclosures.

Response 4: Thank you very much for your contribution. The disaggregated results have been incorporated into the study and show that only economic disclosures do not exhibit statistical significance. The adjustment is described in detail in Section 4 ('Results').

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

All the required amendments have been performed adequately. I have no further comments.