Corporate Social Responsibility Information Disclosure and Innovation Sustainability: Evidence from China
Round 1
Reviewer 1 Report
This paper analyses the link between CSR information disclosure and innovation sustainability in Chinese companies. The topic is interesting and challenging and there is a need for investigation in the arena. I appreciated the paper: it is clear and its results are the consequence logical study. The research design is appropriate and the methods adequately described. However I have some suggestions for the Authors. First of all I suggest to reduce the introduction by cutting from line 66 to line 85 as this part is redundant compared to paragraph 2 “Theoretical analysis and research hypothesis”. At the same time, I think the introduction needs a deepening about the innovation sustainability issues: I wonder what meaning Authors attribute to “innovation sustainability”.
With reference to sample and data I suggest to Authors to better explain the content of WIND and CSMAR database. Probably they know very well these databases but I think that it should be more useful to deeply analyse them.
Finally, the concluding remarks have to be developed in more depth, by explaining if and why results can be extended to the international panorama, as the Chinese context is very particular compared to the international one.
Thus, for the abovementioned reason I believe the paper minor revisions in order to find relevant results for the academic community.
Author Response
Dear professor,
We are very grateful for your valuable suggestions for our paper. We carefully read your suggestions and made the following amendments. We have improved the introduction and the conclusions. At the same time, we have edited and revised the English language. We explain point-by-point the details of the revisions in the manuscript and our responses to your comments. The specific modification is as follows:
Point 1: First of all I suggest to reduce the introduction by cutting from line 66 to line 85 as this part is redundant compared to paragraph 2 “Theoretical analysis and research hypothesis”.
Response 1: According to the reviewer's comments, we reduce the introduction by cutting from line 66 to line 85 as this part is redundant compared to paragraph 2 “Theoretical analysis and research hypothesis”. The deleted content is as follows:
Please see the attachment (lines 73-87 and 88-97).
Point 2: At the same time, I think the introduction needs a deepening about the innovation sustainability issues: I wonder what meaning Authors attribute to “innovation sustainability”.
Response 2: According to the reviewer's comments, we add a deepening about the innovation sustainability issues and give the meaning of innovation sustainability. The added content is as follows:
Innovation sustainability means that if a corporate has been innovative in the past, it has a high probability of being innovative in the next few years, showing certain continuity in time with a time accumulation effect. Innovation sustainability is a type of benign and circular feedback innovation. The essence of innovation sustainability is that current innovation is positively correlated with past innovation and can produce sustainable innovation benefits for the firm [5]. Please see the attachment (lines 35-40).
Point 3: With reference to sample and data I suggest to Authors to better explain the content of WIND and CSMAR database. Probably they know very well these databases but I think that it should be more useful to deeply analyse them.
Response 3: According to the reviewer's comments, we add the explanation and content of WIND and CSMAR databases. The added content is as follows:
CSMAR refers to the China stock market and accounting research, providing an economic and financial database developed from the academic research combined with the actual situation in China. It covers 18 series of research data, including factor research, green economy, stocks, and company research. The WIND Data Service, as the leading financial data provider in China, equips investment professionals with accurate and complete data on stocks, bonds, funds, derivatives, indices, and the macro-economy. Please see the attachment (lines 327-332).
Point 4: Finally, the concluding remarks have to be developed in more depth, by explaining if and why results can be extended to the international panorama, as the Chinese context is very particular compared to the international one.
Response 4: According to the reviewer's comments, we develop the concluding remarks in more depth; explain if and why the results can be extended to the international panorama, and compare the Chinese context with that of the developed countries. The added content is as follows:
The disclosure system and background of CSR information disclosure in China are different from those in developed countries. Many large enterprises in developed countries attach considerable importance to employee welfare, charity, and environmental pollution control, and voluntarily undertake these social responsibilities and disclose the activities. However, in China, CSR information disclosure has become a means of image promotion and financing, and the reliability of CSR information has decreased, creating difficulties for users to obtain true information, thus misleading investors, customers, and other stakeholders in judging the fulfillment of CSR. Based on CSR information disclosure in China as the research background, we found that CSR information disclosure can significantly improve innovation sustainability. Although the results increase our understanding in innovation sustainability research in developed countries, because the system of CSR information disclosure is different from developed countries, whether the results can be extended internationally need to closely combined with the background of the country's particular information disclosure. Please see the attachment (lines 589-601).
The above is the specific modification results we made in response to the reviewers' comments. If you think there are other places that need to be modified, we will make serious modifications again based on your comments.
Kind regards,
Jinzhu Du
Author Response File: 
Author Response.docx
Reviewer 2 Report
Referee Report
Comments and Suggestions
You should clarify the contributions of the paper which are not elaborated well in the current paper. You can talk about the following contributions: What insights can you provide based on your finding? Do they push forward our understanding? What should we do with your research? Do you have any suggestions to improve the current regulation or practice? Adding the above discussion and extend your literature review may help you make more contributions and position your contributions better.
The paper seems to claim causality but does not discuss the potential endogeneity issue and its remedies sufficiently. See Li 2016, Endogeneity in CEO power: A survey and experiment, Investment Analysts Journal, 45 (3): 149-162 for a summary of methods to deal with the endogeneity problem. No need to use all these methods but at least discuss them in your scenario.
Related to the above point, you should study and rationalize the use of firm size measures in the literature since frim size is the key variable in this area and they affect the independent and dependent variables simultaneously. （larger firms have more CSR info disclosure and innovation simultaneously） See Dang et al. 2018. Measuring Firm Size in Empirical Corporate Finance. Journal of Banking & Finance, 86:159-176. After all it is the most significant variable in most studies alike. You need to discuss and justify your firm size measure. The results may not be robust to different measures of firm size, which is very common in this area.
The endogeneity problem can be driven by unobservable CEO characteristics you need to discuss. See Coles and Li, 2019. Managerial Attributes, Incentives, and Performance and Coles and Li, 2019.
An Empirical Assessment of Empirical Corporate Finance.
Additionally, you should refer to more recent development in this area. For instance, how CSR-contingent executive compensation affects corporate social performance. See Hong et al. 2016. Corporate Governance and Executive Compensation for Corporate Social Responsibility. Journal of Business Ethics 136 (1): 199-213; Ikram et al. 2019. CSR-Contingent Executive Compensation Contracts. Journal of Banking & Finance forthcoming; Li and Thibodeau. 2019. CSR-Contingent Executive Compensation Incentive and Earnings Management. Sustainability 11(12): 3421.
Also, CSR may affect risk taking incentives such as in Dunbar, Li and Shi. 2019. Corporate Social Responsibility and CEO Risk-Taking Incentives. Journal of Corporate Finance forthcoming. It is plausible that CSR disclosure reduces risk and increase risk capacity for innovation. You need to discuss those aspects of possible channels to give readers a more comprehensive view and a richer story and/or point out future research direction from these perspectives.
In conclusion, I would like to thank the authors for a very interesting, unique and potentially important paper. Hope these comments and suggestions can help further their study.
Author Response
Dear professor,
We are very grateful for your valuable suggestions for our paper. We carefully read your suggestions and made the following amendments. We have improved the introduction, the methods and the conclusions. At the same time, we have edited and revised the English language. We explain point-by-point the details of the revisions in the manuscript and our responses to your comments. The specific modification is as follows:
Point 1: You should clarify the contributions of the paper which are not elaborated well in the current paper. You can talk about the following contributions: What insights can you provide based on your finding?
Response 1: According to the reviewer's comments, we add the insights based on our finding. The modified content is as follows:
CSR disclosure by companies will increase the company’s exposure to the public, thereby increasing supervision by the public. CSR information disclosure can not only increases investor trust, so that the public can understand the actual operating conditions of listed enterprises, but also improve information transparency and corporate reputation, thereby helping enterprises to obtain innovation funds. Please see the attachment (lines 531-535). As the leaders of the country, the central enterprises should play an exemplary role in promoting the quality of their own social responsibilities, not just to meet the policy requirements, but also to instill the corporate responsibility concept and provide a positive example for the securities market. Please see the attachment (lines 542-545).
When formulating innovation strategy or innovation policy, enterprises should not only fully consider their own management stock mechanism, but also design the contract according to the innovation level of the enterprise to determine the level of managerial incentive. Please see the attachment (lines 548-550).
Point 2: You can talk about the following contributions: Do they push forward our understanding?
Response 2: According to the reviewer's comments, we complement the understanding of the results in this paper. The modified content is as follows:
In conclusion, we systematically analyzed the micro mechanism of CSR information disclosure and provide new empirical support for the academic debate on the economic consequences of CSR information disclosure. The above research conclusions can help listed companies to strengthen CSR information disclosure and improve the innovation sustainability and to provide a new perspective for improving the protection of the interests of enterprise owners and investors. Please see the attachment (lines 567-572).
Point 3: You can talk about the following contributions: What should we do with your research?
Response 3: According to the reviewer's comments, we complement the future study based on our finding. The additions are as follows:
Future studies could consider the role of other internal/external factors, such as executive compensation, CEO characteristics, risk taking, and institutional investors, on the relationship of CSR information disclosure and innovation sustainability. Please see the attachment (lines 614-617).
Point 4: You can talk about the following contributions: Do you have any suggestions to improve the current regulation or practice?
Response 4: According to the reviewer's comments, we add the suggestions and policies to encourage CSR disclosure information and to improve innovation sustainability behaviors in Chinese capital markets. The modified content is as follows:
By researching the mechanism influencing CSR disclosure, we provide the following suggestions and policy recommendations to encourage CSR disclosure and to improve innovation sustainability behaviors in Chinese capital markets. (1) We emphasize the importance of CSR information to corporate sustainable development. When the level of CSR information disclosure is low, improving corporate innovation ability is difficult. Therefore, we encourage the listed companies to enhance their sense of responsibility as members of society, to combine their own development with the overall balanced development of society, and to protect the interests of stakeholders in all sectors of society while pursuing their own economic benefits. (2) The CSR disclosure of state-owned enterprises has an unsatisfactory effect on the improvement of innovation sustainability, indicating that some state-owned enterprises have taken advantage of undue gains from the information provided with CSR disclosure. Therefore, the government should issue some rigorous laws, regulations, and policies to enhance the quality of CSR disclosure information. (3) Managerial stock incentive plays an important internal governance role in listed companies. To further improve corporate governance and promote the development of the capital market, managerial incentive should be further regulated and guided to enhance the role of these incentives in the future. Please see the attachment (lines 573-588).
Point 5: Extending your literature review may help you make more contributions and position your contributions better.
Response 5: According to the reviewer's comments, we extend the literature review and may help us make more contributions and position our contributions better. The modified content is as follows:
The impact of the relationship between internal/external factors and CSR should be considered on the company’s investment and financing process and the innovation activities [23–26]. For example, Hong et al. [23] found that providing executives with direct incentives for CSR is an effective tool for increasing firm social performance. The findings identified corporate governance as a determinant of managerial incentives for social performance, and suggested that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost. Ikram and Li [24] found that CSR contracts are primarily granted by large firms with a history of being socially responsible, particularly in industries where employee safety and environmental protection concerns are likely to be important. Li and Thibodeau [25] stated that executives are more likely to manipulate earnings to achieve their personal compensation goals as well as their CSR-contingent compensation when the CSR rating is low. Dunbar and Li [26] reported that CSR standing is positively related to chief executive officer (CEO) pay risk sensitivity, demonstrating that firms whose sustainable initiatives are viewed as successful are more likely to offer their CEOs greater risk-motivating financial incentives.
Whereas these prior studies indicate that CSR information disclosure can reduce information asymmetry, improve information transparency, and reduce financing constraints, the literature on the relationship of CSR information disclosure and innovation sustainability is nascent. The major causes of innovation sustainability are the principal–agent problem, information asymmetry, and financing constraints, whereas CSR information disclosure is an important factor that directly affects the above major causes. CSR information disclosure may also trigger managerial professional attention and affect company innovation sustainability. Therefore, the effect of CSR information disclosure on innovation sustainability was the focus of this study. Lerner and Wulf [27] stated that more long-term incentives (e.g., stock options and restricted stock) are associated with more heavily-cited patents, and performance pay of corporate R&D heads is associated with more innovative firms. Lin et al. [28] opined that the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance. Although these earlier studies showed that managerial incentive has a significant influence on the corporate innovation, they failed to consider the role of managerial stock incentive as a mediator of the relationship between CSR information disclosure and innovation sustainability. Our findings contribute to the literature by identifying an important mediator and by explaining the influential effect of CSR information disclosure on innovation sustainability. Please see the attachment (lines 153-183).
Point 6: The paper seems to claim causality but does not discuss the potential endogeneity issue and its remedies sufficiently. No need to use all these methods but at least discuss them in your scenario.
Response 6 and 8: Since we use the method of lagging independent variable construct empirical model. The modified content is as follows:
To reduce the endogenous problem, we adopted the lagging independent variable to construct the empirical model [67]. (lines 365-366).
Therefore, according to the reviewer's comments, we refer to the research method of Li (2016), employ the Instrumental Variable (IV) approach and Control Variables approach to further test the robustness of this paper. The modified content is as follows:
We also performed other robustness tests. (1) A causal relationship may exist between CSR information disclosure and innovation sustainability. We can never exhaust all the factors that determine innovation sustainability. The residual endogeneity may still lead to an inconsistent estimation of the direct effect of the CSR information disclosure on innovation sustainability. Therefore, we referred to Li’s research method [70] and employed an instrumental variable (IV) approach to isolate this direct effect, in which the instruments should be correlated with the CSR information disclosure but not with the structural residual of innovation sustainability. We selected the lagging second-phase sales growth rate as an instrumental variable, and the results showed that the results are robust. (2) The other method to address the endogeneity problem is to include as many important and time-variant control variables as possible. These variables are the potential factors that jointly influence CSR information disclosure and innovation sustainability. The endogeneity problem can be driven by unobservable CEO characteristics. Referring to Coles and Li [71], we added duality (when the CEO and the chairman are the same person, Duality is valued as 1; otherwise, Duality is valued 0), TENURE (the length of time that the CEO has been in their position), and INDIR (the proportion of independent directors). In all cases, the results held, demonstrating that our conclusions are is robust. For the sake of brevity, we do not report these results.
Please see the attachment (501-517).
Point 7: Related to the above point, you should study and rationalize the use of firm size measures in the literature since firm size is the key variable in this area and they affect the independent and dependent variables simultaneously. After all it is the most significant variable in most studies alike. You need to discuss and justify your firm size measure. The results may not be robust to different measures of firm size, which is very common in this area.
Response 7: According to the reviewer's comments, firm size can affect the independent and dependent variables simultaneously. Since the firm size has been taken as the control variable in this paper and it has been proved in subsequent empirical studies that the firm size is positively correlated with CSR information disclosure and innovation sustainability, so this paper has selected the firm size as control variable, which is consistent with the opinions of reviewer. Please see the attachment (lines 356 and 362).
Point 8: The endogeneity problem can be driven by unobservable CEO characteristics you need to discuss.
Response 8: According to the reviewer's comments, we select the CEO characteristics variables (eg. CEO Duality and CEO TENURE) to test the robustness, meanwhile, we also choose the INDIR as the control variables to test the robustness in the paper. The modified content is as follows:
(2) The other method to address the endogeneity problem is to include as many important and time-variant control variables as possible. These variables are the potential factors that jointly influence CSR information disclosure and innovation sustainability. The endogeneity problem can be driven by unobservable CEO characteristics. Referring to Coles and Li [71], we added duality (when the CEO and the chairman are the same person, Duality is valued as 1; otherwise, Duality is valued 0), TENURE (the length of time that the CEO has been in their position), and INDIR (the proportion of independent directors). In all cases, the results held, demonstrating that our conclusions are is robust. For the sake of brevity, we do not report these results. Please see the attachment (lines 509-517).
Point 9: Additionally, you should refer to more recent development in this area.
Response 9: According to the reviewer's comments, we refer to more recent development in this area and extend the literature review. Meanwhile, references have been updated. The modified content is as follows:
The impact of the relationship between internal/external factors and CSR should be considered on the company’s investment and financing process and the innovation activities [23–26]. For example, Hong et al. [23] found that providing executives with direct incentives for CSR is an effective tool for increasing firm social performance. The findings identified corporate governance as a determinant of managerial incentives for social performance, and suggested that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost. Ikram and Li [24] found that CSR contracts are primarily granted by large firms with a history of being socially responsible, particularly in industries where employee safety and environmental protection concerns are likely to be important. Li and Thibodeau [25] stated that executives are more likely to manipulate earnings to achieve their personal compensation goals as well as their CSR-contingent compensation when the CSR rating is low. Dunbar and Li [26] reported that CSR standing is positively related to chief executive officer (CEO) pay risk sensitivity, demonstrating that firms whose sustainable initiatives are viewed as successful are more likely to offer their CEOs greater risk-motivating financial incentives.
Whereas these prior studies indicate that CSR information disclosure can reduce information asymmetry, improve information transparency, and reduce financing constraints, the literature on the relationship of CSR information disclosure and innovation sustainability is nascent. The major causes of innovation sustainability are the principal–agent problem, information asymmetry, and financing constraints, whereas CSR information disclosure is an important factor that directly affects the above major causes. CSR information disclosure may also trigger managerial professional attention and affect company innovation sustainability. Therefore, the effect of CSR information disclosure on innovation sustainability was the focus of this study. Lerner and Wulf [27] stated that more long-term incentives (e.g., stock options and restricted stock) are associated with more heavily-cited patents, and performance pay of corporate R&D heads is associated with more innovative firms. Lin et al. [28] opined that the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance. Although these earlier studies showed that managerial incentive has a significant influence on the corporate innovation, they failed to consider the role of managerial stock incentive as a mediator of the relationship between CSR information disclosure and innovation sustainability. Our findings contribute to the literature by identifying an important mediator and by explaining the influential effect of CSR information disclosure on innovation sustainability. Please see the attachment (lines 153-183).
Point 10: You need to discuss those aspects of possible channels to give readers a more comprehensive view and a richer story and/or point out future research direction from these perspectives.
Response 10: According to the reviewer's comments, we discuss those aspects of possible channels and point out future research direction from these perspectives. The modified content is as follows:
Future studies could consider the role of other internal/external factors, such as executive compensation, CEO characteristics, risk taking, and institutional investors, on the relationship of CSR information disclosure and innovation sustainability. Please see the attachment (lines 614-617).
The above is the specific modification results we made in response to the reviewers' comments. If you think there are other places that need to be modified, we will make serious modifications again based on your comments.
Kind regards,
Jinzhu Du
Author Response File: Author Response.docx
Round 2
Reviewer 2 Report
Well done.
