Navigating Financial Risk in the Digital Age: The Mediating Role of Performance and Indebtedness

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Dear authors,

First, I appreciate the opportunity to review this manuscript. The paper explores how digital transformation influences financial risk through the mediating effects of financial performance and indebtedness. It offers valuable insights into both academic theory and real-world financial strategy, particularly within emerging market contexts. Following a review of the research and analysis, I would like to offer the following comments and suggestions:

The conceptual model is logically structured and well-grounded in both the Resource-Based View (RBV) and Pecking Order Theory. Some sections—especially the literature review and hypothesis development—would benefit from improved transitions and more concise writing. Avoid overly long or complex sentences that hinder readability. Consider restructuring lengthy paragraphs and utilizing additional subheadings for enhanced clarity.

To ensure robust methodological transparency, the methods section must go beyond general statements. It is imperative to explicitly detail every aspect of the survey instrument. For each construct within your conceptual model – such as "Digital Transformation," "Financial Performance," "Financial Risk," and "Firm Indebtedness" – you must provide an exhaustive account of its measurement. This requires:

• Full Item Listing: Presenting the exact wording of all items comprising each construct.
• Source and Justification: Specifying whether each item was directly adopted from existing literature or newly developed for this study, along with a clear justification for its inclusion.
• Comprehensive Table: Including a dedicated table that meticulously lists all items for each construct, alongside their precise source (e.g., "Adapted from [...]).

General statements like " Digital transformation was measured according to a multi-item scale, based on  extant literature, which reflects technology integration extent, innovation ability, and digital strategy implementation at the organizational level, as evidenced in works bridging the gap between digital development and organizational performance (Teichert, 2023)." are insufficient. Instead, provide the specific items, for example, "The 'Digital Transformation' construct was measured using [N] items, including: ' ….. ' (adapted from ….); '……' (developed for this study); etc." This level of detail is crucial for readers to fully comprehend your construct definitions and replicate your research.

Clarify the rationale for selecting the Moroccan context and how this might limit generalizability. Also, provide justification for using perceptual measures alongside objective ones.

Figure 1 (conceptual model) requires clearer integration into the narrative and should be presented more clearly.

Also, the findings would benefit from a more nuanced interpretation that goes beyond statistical significance. Consider how the magnitude of path coefficients (especially the indirect effects) translate into actionable insights for different organizational contexts. For instance, the indirect effect of digital transformation on financial risk via indebtedness (β = -0.318) is statistically significant, but its economic or managerial relevance should be explored in more detail. How should firms with varying debt profiles or regulatory constraints interpret these results? Expand the discussion on mediation analysis and its practical implications. How do these mediating relationships influence real-world strategic decisions?

Several formatting and typographical issues should be addressed:

• Correct “Descreptive Statistics” → “Descriptive Statistics.”
• Ensure consistent decimal formatting across all tables (use "." not ",").
• Line 230: Capitalize the beginning of the sentence (“The trade-off theory…”).
• Standardize formatting for all tables and figures (headings, font, spacing).
• Edit for conciseness. Examples include overly long sentence structures and duplicated qualifiers (e.g.,Line 207: “pressing necessity to stay competitive and technologically current” could be simplified)
• Perform a final grammar check to eliminate minor phrasing and punctuation inconsistencies.
• Ensure all in-text citations match entries in the reference list and vice versa.

In conclusion, several key weaknesses of the article can be pointed out. The paper would benefit from a stronger justification of the selected theoretical model and the measurement indicators used, in order to more rigorously and persuasively support the validity of the results. Additionally, the discussion section should be expanded and refined to better contextualize the findings and provide deeper theoretical substantiation, thereby reinforcing the central aim and scholarly contribution of the study. Collectively, improvements in methodological transparency, interpretive depth, formatting, and practical articulation can significantly increase the scientific quality of the work. 

Comments on the Quality of English Language

The manuscript is readable and mostly well-structured, but suffers from verbosity and occasional grammatical errors. A professional language review is recommended.

Author Response

We would like to sincerely thank you for your thorough and constructive review. Your detailed comments and suggestions have greatly contributed to improving the quality, clarity, and rigor of our manuscript. We have carefully considered each point and made the necessary revisions accordingly. Below, we provide a point-by-point response outlining the changes made.

Comments 1

Some sections—especially the literature review and hypothesis development—would benefit from improved transitions and more concise writing. Avoid overly long or complex sentences that hinder readability. Consider restructuring lengthy paragraphs and utilizing additional subheadings for enhanced clarity.

Answer 1

Thank you for your valuable feedback regarding the clarity and structure of the literature review and hypothesis development sections.

In response, we have carefully revised these sections to improve readability and logical flow. Specifically :

• We simplified overly long or complex sentences to enhance clarity and reduce cognitive load.
• Where appropriate, we split lengthy paragraphs into shorter, more focused units to facilitate easier comprehension.
• Transitions between ideas and theories have been strengthened to ensure smoother logical progression across paragraphs and between hypotheses.
• Additional attention was given to using precise and academic language, and ensuring each hypothesis is clearly grounded in both theoretical and empirical support.

Comments 2

The reviewer emphasizes the need for full methodological transparency by urging the author to move beyond vague descriptions and provide a detailed account of how each construct—Digital Transformation, Financial Performance, Financial Risk, and Firm Indebtedness—was measured. This includes listing all questionnaire items verbatim, clearly stating their sources, justifying their inclusion, and presenting this information in a comprehensive table. General statements without item-level detail are deemed insufficient for ensuring clarity, validity, and reproducibility of the research.

Answer 2

In response to your comments, we have revised the methods section to include a detailed presentation of the measurement approach for each construct used in our conceptual model.

Specifically, we have created a comprehensive table (table 1) that outlines:

• The exact wording of each survey item,
• The source of each item (whether adopted or adapted from existing literature),
• A justification for its inclusion based on theoretical or empirical relevance.

This detailed table now complete the previously general descriptions and ensures full replicability and construct clarity.

 

Comments 3

Clarify the rationale for selecting the Moroccan context and how this might limit generalizability.

Answer 3

we have developed the following passage in the "Sample and Data Collection" section to justify our contextual choice:

"The Moroccan context was chosen for its relevance as an emerging market actively engaged in digital transformation initiatives while simultaneously facing financial pressures and risk exposure. Morocco has launched several national strategies that underscore the intersection between digitalization and financial resilience. However, research exploring how digital transformation affects financial risk through mediating organizational variables remains limited in this context. This study, therefore, offers both theoretical and practical contributions by investigating these dynamics within a rapidly evolving economic environment, providing insights applicable to similar developing economies."

Also, we have addressed this point in the limitations section by clarifying that the selection of the Moroccan context was driven by the country's ongoing efforts toward digital transformation, as well as the growing relevance of financial stability and digitalization in emerging economies. Morocco presents a unique setting where digital adoption is advancing rapidly, yet empirical research on its financial implications remains limited—making it a suitable and relevant context for exploratory study.

Comments 4

provide justification for using perceptual measures alongside objective ones.

Answer 4

we have tried to justify this choice by adding the following passage to the methodology section:

"To strengthen the robustness of the measurement strategy, this study combines both perceptual and objective indicators. The use of perceptual measures is justified by the nature of the data and the contextual constraints. In many emerging markets, including Morocco, access to timely and complete objective financial data at the firm level is often limited or inconsistent. Managerial perceptions, when measured using validated scales, provide a reliable proxy that captures not only quantitative outcomes but also strategic insights and contextual nuances that are not always visible through raw financial figures. Meanwhile, objective measures such as financial leverage ratios are used for firm indebtedness, offering a complementary quantitative anchor. The integration of both types of measures enhances the overall validity and realism of the model by balancing subjective assessments with hard financial data."

Also, we have addressed this point directly in the limitations section. We clarified that the use of both objective and perceptual measures was necessitated by limited access to comprehensive financial data, particularly in the context of emerging markets like Morocco.

Comments 5

Figure 1 (conceptual model) requires clearer integration into the narrative and should be presented more clearly.

Answer 5

To enhance the integration of Figure 1 into the narrative, we have added the following explicative passage directly after the hypotheses section to provide conceptual clarity and improve the flow between the theoretical development and the visual representation:

“The relationships hypothesized above are illustrated in the conceptual model presented in Figure 1. This model captures the central idea that digital transformation is a strategic driver that influences both financial performance and firm indebtedness, which in turn shape the firm's overall financial risk profile. It reflects a dual mediation structure: on the one hand, financial performance serves as a positive outcome of digital transformation and a protective buffer against financial risk; on the other hand, indebtedness may emerge as a consequence of investment in digital technologies and, in turn, elevate risk exposure.”

Comments 6

the findings would benefit from a more nuanced interpretation that goes beyond statistical significance. Consider how the magnitude of path coefficients (especially the indirect effects) translate into actionable insights for different organizational contexts. For instance, the indirect effect of digital transformation on financial risk via indebtedness (β = -0.318) is statistically significant, but its economic or managerial relevance should be explored in more detail. How should firms with varying debt profiles or regulatory constraints interpret these results? Expand the discussion on mediation analysis and its practical implications. How do these mediating relationships influence real-world strategic decisions?

Answer 6

We have revised the discussion section to include a more nuanced interpretation of the findings, especially regarding the magnitude and relevance of indirect effects.

We now highlight the statistical significance and the economic and managerial implications of the indirect effects—particularly the path from digital transformation to financial risk via firm indebtedness (β = -0.318). We explain how this result is particularly relevant for firms with high leverage or regulatory capital constraints, suggesting that digital transformation can serve as a strategic lever to reduce financial fragility by indirectly lowering debt exposure.

In addition, we expand the discussion of the mediation analysis to show how digital transformation influences financial performance, which in turn affects both indebtedness and financial risk. This sequential mediation path is positioned as a key insight for decision-makers, illustrating how integrated digital and financial strategies can lead to long-term risk mitigation.

Comments 7

Several formatting and typographical issues should be addressed:

• Correct ‘Descreptive Statistics’ → ‘Descriptive Statistics.’
• Ensure consistent decimal formatting across all tables (use '.' not ',').
• Line 230: Capitalize the beginning of the sentence (‘The trade-off theory…’).
• Standardize formatting for all tables and figures (headings, font, spacing).
• Edit for conciseness. Examples include overly long sentence structures and duplicated qualifiers (e.g., Line 207: ‘pressing necessity to stay competitive and technologically current’ could be simplified).

Answer 7

We have carefully revised the manuscript to address all noted issues:

• The typo “Descreptive Statistics” has been corrected to “Descriptive Statistics.”
• All tables have been updated to reflect consistent decimal formatting, using periods instead of commas.
• The sentence beginning on line 230 now starts with a capital letter (“The trade-off theory…”).
• We have standardized the formatting of all tables and figures, ensuring consistency in headings, font, and spacing throughout the document.

In response to your comments on style and clarity, we have revised several sentences for conciseness and readability, including the example on line 207, which now reads more simply while preserving its intended meaning.

Reviewer 2 Report

Comments and Suggestions for Authors

General Overview:

The manuscript entitled “Navigating Financial Risk in the Digital Age: The Mediating Role of Performance and Indebtedness” explores a highly relevant topic by investigating how digital transformation influences financial risk through its impact on financial performance and indebtedness. Utilizing a Structural Equation Modeling (SEM) approach with data from Moroccan firms, the paper builds on a solid theoretical foundation (Resource-Based View and Pecking Order Theory) to develop and empirically test a robust conceptual model. The manuscript is well-researched and methodologically sound, offering practical implications for financial and digital strategy alignment in emerging economies. However, while the overall structure is appropriate, some refinements are needed in clarity, consistency, and data interpretation.

Comments and Suggestions for Authors:

1. Clarification of Research Question (Page 2, Section 1, Lines 55–59):
• The main research question is important, but currently embedded within a dense paragraph. Please consider restating it in a more concise and visible manner. This will improve the manuscript's readability and ensure readers grasp the study's central objective.
2. Visual Clarity in Conceptual Model (Page 7, Figure 1):
• The conceptual model effectively outlines the hypothesized relationships. However, the mediation paths (H6, H7, H8) could be labeled more clearly to distinguish them from direct effects. Consider using visual distinctions (e.g., dotted lines for indirect effects) or numbering enhancements.
3. Interpretation of HTMT Results (Page 10–11, Tables 2 & 3):
• While all HTMT values are below the recommended 0.90 threshold, the value of 0.698 between Financial Performance and Firm Indebtedness is relatively high. A brief discussion or interpretation in the text would help reassure readers regarding discriminant validity.
4. Terminology in Abstract (Page 1, Lines 18–20):
• The phrase "indirect effects" might not be clear to non-specialist readers. Consider specifying the mediators (financial performance and indebtedness) within the abstract to enhance clarity.
5. Statistical Reporting Accuracy (Page 9, Section 4.1, Lines 376–401):
• Please verify the percentages in Table 1. The statement that SMEs represent 25% of the sample seems inconsistent with the actual value (280 out of 392 respondents equals approximately 71%). Double-check all demographic data for accuracy.
6. Broader Application of Results (Page 13, Section 5.3, Lines 546–555):
• While the geographic limitation is noted, we suggest enhancing the conclusion by identifying specific countries or regions where future research could apply the model to validate cross-contextual relevance.
7. Language and Syntax Enhancements:
• Although the overall language quality is acceptable, certain phrases are awkward or unclear. For example, "indebtedness is boosted through the employment of digital technologies" (Page 7) could be rephrased to "digital technology adoption may increase firm reliance on external financing." We recommend a thorough proofreading to improve fluency and precision.
8. Formatting Consistency:
• Ensure consistent formatting of all Latin binomials, theoretical models, and acronyms. Abbreviations like RBV and SEM should be spelled out upon first use and formatted according to journal guidelines.
9. References:
• The reference list is generally strong and up-to-date. However, please ensure consistency in style (e.g., year placement, punctuation, italicization of journal titles) in line with JRFM referencing standards.

Author Response

We would like to sincerely thank you for your thorough and constructive review. Your detailed comments and suggestions have greatly contributed to improving the quality, clarity, and rigor of our manuscript. We have carefully considered each point and made the necessary revisions accordingly. Below, we provide a point-by-point response outlining the changes made.

Comments 1

Clarification of Research Question (Page 2, Section 1, Lines 55–59):

The main research question is important, but currently embedded within a dense paragraph. Please consider restating it in a more concise and visible manner. This will improve the manuscript's readability and ensure readers grasp the study's central objective.

Answer 1

we have reformulated the main research question in a standalone format and highlighted it in bold to enhance its visibility.

Comments 2

Visual Clarity in Conceptual Model (Page 7, Figure 1):

The conceptual model effectively outlines the hypothesized relationships. However, the mediation paths (H6, H7, H8) could be labeled more clearly to distinguish them from direct effects. Consider using visual distinctions (e.g., dotted lines for indirect effects) or numbering enhancements.

 

Answer 2

We have revised the conceptual model diagram to distinguish clearly between direct and indirect effects. Solid arrows now represent direct relationships, while dashed arrows represent indirect (mediated) paths. A legend has also been added to enhance clarity and support the reader’s interpretation of the model.

 

Comments 3

Interpretation of HTMT Results (Page 10–11, Tables 2 & 3):

While all HTMT values are below the recommended 0.90 threshold, the value of 0.698 between Financial Performance and Firm Indebtedness is relatively high. A brief discussion or interpretation in the text would help reassure readers regarding discriminant validity.

Response 3

We appreciate the reviewer’s insightful comment regarding the HTMT value of 0.698 between Financial Performance and Firm Indebtedness. In response, we have added a brief interpretation in the text to acknowledge the relatively higher correlation, linking it to the theoretical interdependence between these constructs. However, as the value remains below the 0.90 threshold, discriminant validity is not compromised. This clarification is now provided in the revised passage.

Comments 4

Terminology in Abstract (Page 1, Lines 18–20):

The phrase "indirect effects" might not be clear to non-specialist readers. Consider specifying the mediators (financial performance and indebtedness) within the abstract to enhance clarity.

Answer 4

We have revised the abstract to replace the general phrase “indirect effects” with a more specific formulation that explicitly names the mediators—financial performance and firm indebtedness. This adjustment enhances clarity for non-specialist readers and aligns with your recommendation.

Comments 5

Statistical Reporting Accuracy (Page 9, Section 4.1, Lines 376–401):

Please verify the percentages in Table 1. The statement that SMEs represent 25% of the sample seems inconsistent with the actual value (280 out of 392 respondents equals approximately 71%). Double-check all demographic data for accuracy.

Answer 5

Thank you for your careful observation. We have thoroughly reviewed the demographic data and corrected the percentages in Table 1 (now table 2). As you rightly pointed out, SMEs represent approximately 71% of the total sample (280 out of 392 respondents), not 25% as previously indicated. Similar adjustments have been made for all other attributes (firm classification, sector, and function), using the appropriate base of calculation for each subgroup. The accompanying textual description in Section 4.1 has also been revised accordingly to ensure full consistency with the corrected table.

Comments 6

Broader Application of Results (Page 13, Section 5.3, Lines 546–555):

While the geographic limitation is noted, we suggest enhancing the conclusion by identifying specific countries or regions where future research could apply the model to validate cross-contextual relevance.

Answer 6

We have revised the limitations section to explicitly identify specific emerging economies—such as Egypt, South Africa, and Tunisia—as potential contexts for future research. These regions share certain characteristics with Morocco in terms of digital development trajectories but also differ institutionally, making them suitable for testing the model’s cross-contextual relevance and generalizability.

Comments 7

Language and Syntax Enhancements:

Although the overall language quality is acceptable, certain phrases are awkward or unclear. For example, "indebtedness is boosted through the employment of digital technologies" (Page 7) could be rephrased to "digital technology adoption may increase firm reliance on external financing." We recommend a thorough proofreading to improve fluency and precision.

Answer 7

a proofreading of the manuscript has been conducted to enhance readability, precision, and consistency throughout the text. The phrase "indebtedness is boosted through the employment of digital technologies" has been revised, as suggested. Similar improvements have been applied across the document to ensure better linguistic quality and scholarly tone.