Corporate Social Responsibility and Firm Value: The Moderating Effects of Financial Flexibility and R&D Investment

Round 1

Reviewer 1 Report

Thank you to “Sustainability” for the review possibility of the article, and compliments to the authors for the efforts they made to write the paper.

Through an empirical analysis conducted on 2,311 Chinese listed companies from 2010 to 2016, the study explores the relationship between market value and CSR, further examining the moderating effects by financial flexibility and R&D investments.

In my opinion, the article is interesting, but it needs significant revisions to be published.

In the following notes, I provide my suggestions to the authors that may help improve the overall quality of the paper.

a) In section “2.1. Corporate social responsibility and firm value”, the authors synthesize effectively the relationship between CSR and firm value proposed in the studies related to “agency theory” and “stakeholder theory and institutional theory”. In this part, however, other important scientific contributions deserve to be cited and linked to the research hypotheses. Among others:

• Li, F., Li, T. and Minor, D. (2016), "CEO power, corporate social responsibility, and firm value: a test of agency theory", International Journal of Managerial Finance, Vol. 12 No. 5, pp. 611-628. https://doi.org/10.1108/IJMF-05-2015-0116
• Jo, H., Harjoto, M.A. (2012), “The Causal Effect of Corporate Governance on Corporate Social Responsibility”, Journal of Business Ethics, 106, 53–72 (2012). https://doi.org/10.1007/s10551-011-1052-1
• Lourenço, I.C., Branco, M.C., Curto, J.D. et al. (2012), “How Does the Market Value Corporate Sustainability Performance?”, Journal of Business Ethics, 108, 417–428 (2012). https://doi.org/10.1007/s10551-011-1102-8

 

 

b) In sections 2.2, 2.2.1, and 2.2.2 the authors address the issue of moderating effects concerning financial flexibility and R&D investments. This part is particularly important, so much that the authors consider these aspects as fundamental contributions that the paper makes to the literature (introduction, lines 53-58). However, they omit some important bibliographic references, which must be taken into account both to provide a more complete view of the literature and to better locate the research hypotheses. The two issues have been explored in literature much more than the authors lead us to believe.

I suggest to the authors some additional references that could complete the introduction and literature review. They are also useful to better support the discussion and conclusions:

• Saurabh, M., Sachin B. M. (2013), “Positive and Negative Corporate Social Responsibility, Financial Leverage, and Idiosyncratic Risk”, Journal of Business Ethics, 117, 431–448, DOI 10.1007/s10551-012-1526-9
• Becchetti L., Ciciretti R., Hasane I. (2015), “Corporate social responsibility, stakeholder risk, and idiosyncratic volatility”, Journal of Corporate Finance, 35, 297–309
• Roger C.Y. Chen, Shih-Wei Hung, Chen-Hsun Lee (2018), “Corporate Social Responsibility and Firm Idiosyncratic Risk in Different Market States”, Corporate Social Responsibility and Environmental Management, 25, 642–658
• Anan Werdie Wirawan, Laila Jahidatul Falah, Lydia Kusumadewi, Desi Adhariani, Chaerul D. Djakman (2020) “The Effect of Corporate Social Responsibility on the Firm Value with Risk Management as a Moderating Variable”, Journal of Asia-Pacific Business, Vol 21, Issue 2, https://doi.org/10.1080/10599231.2020.1745051
• Padgett, R.C., Galan, J.I. (2010), The Effect of R&D Intensity on Corporate Social Responsibility, Journal of Business Ethics, 93, 407–418, https://doi.org/10.1007/s10551-009-0230-x
• Limin Fu, Dirk Boehe, Marc Orlitzky (2020), “Are R&D-Intensive firms also corporate social responsibility specialists? A multicountry study”, Research Policy, Vol. 49, Issue 8, https://doi.org/10.1016/j.respol.2020.104082

 

c) In section “3.3. Modeling”, the authors present the formulas used to test hypothesis H1 (1-3) and hypothesis H2 (4-6). The presentation of the formulas used to test the H3 hypothesis is missing. These formulas should be traceable to models M3, M7, and M11 exposed in table 3 (page 286). Section 3.3 must be integrated for easier reading.

 

d) Regression models use the dummy variable SH to distinguish companies listed on the Shanghai and Shenzhen stock exchanges. The variable is not always significant, and when it is significant it has a very low regression coefficient. However, since it is used, it would be appropriate to clarify the differences between Shanghai and Shenzhen or why they are not examined

 

e) Regression models use the variable CVs. The authors write that it represents the control variable (see line 249). It is necessary to clarify the meaning and building

 

f) Section "6. Conclusions" is very short and concise to justify an autonomous space. The authors should try to enrich it. Alternatively, given that the journal accepts this solution, the final remarks could be placed in a new section 5, which should be renamed "Discussion and conclusions".

 

g) The manuscript as presented by the authors has some spelling mistakes. For example:

• Line 83 “…managers have the motivated…”
• line 382 “…systemic risk. considering the boundary …”

Although I don't feel qualified to judge about the English language and style, I think that the paper needs proofreading

Comments for author File: Comments.pdf

Author Response

Please see the attachment.

Author Response File: Author Response.pdf

Reviewer 2 Report

Thank you for the opportunity to review your manuscript entitled “Corporate Social Responsibility and Firm Value: Moderating Effects of Financial Flexibility and R&D Investment” I found it interesting and timely and hope that the comments that I have made prove to be constructive and help the authors further refine their manuscript.

1. Rather than talk about scholars with a negative view and scholar with a positive view (lines 31-35), I recommend that the authors take a more neutral tone and perhaps refer to this dichotomy of perspectives in a different way. I suggest that the authors focus on the paradox of different findings.
2. Please use second, not secondly…line 53.
3. Line 96, R&D is not a marketing activity. This needs to be removed.
4. How do the authors define systemic risk and idiosyncratic risk?
5. Section 2.1 draws on a lot of different theories, but it is difficult to know which theory the authors are grounding their arguments in. If this analysis is intended as purly a literature review, it may be helpful for the authors to summarize these different theoretical perspectives in a table and just focus their arguments on one theory.
6. Hypotheses 1a and 1b are competing hypotheses and are not appropriate. You need to take a stand and either build a cogent argument that supports hypothesis 1a or hypothesis 1b, but not both. Otherwise, how do you contribute to the literature? Also, based on the preceding arguments, I don’t see a strong argument in Section 2.1 for corporate earnings, systemic risk, or idiosyncratic risk. In fact, the authors do not use that terminology at all in the preceding paragraphs. Thus, you have not adequately articulated an argument to support the proposed hypotheses.
7. Hypotheses 2a and 2b are also competing hypotheses and are not appropriate. You need to take a stand and either build a cogent argument that supports hypothesis 2a or hypothesis 2b, but not both. Furthermore, now the authors bring in another two theoretical perspectives: long-purse theory and real options.
8. Hypotheses 3a and 3b are also competing hypotheses and are not appropriate. You need to take a stand and either build a cogent argument that supports hypothesis 3a or hypothesis 3b, but not both.
9. Please report the highest mean VIF. It is not adequate to say that it was less than 10.
10. In terms of generalizability, the use of only Chinese firms needs to be addressed in the limitations of the study.
11. On line 390: References is on the same line as Conflicts of Interest. Please move References to a separate line.
12. The manuscript would benefit from a thorough proofread by an experienced copyeditor due to errors in spelling, grammar, and sentence structure, which detract from readability. For example, on lines 13-14, the authors state “…but increases systemic risk and reduce the Tobin's q.” should read “…but increases systemic risk and reduces the Tobin's q.” Likewise, on line 23 the authors state: “The corporate social responsibility (CSR) is a code…” should be “Corporate social responsibility (CSR) is a code…”

Academic research is a discussion. I hope that the suggestions that I have made do not discourage the authors, but rather serve to help guide them to improve their manuscript further.

 

Author Response

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Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Dear authors, you have implemented my suggestions, substantially improving the paper. I am satisfied with your revision, and I think that the article sounds good now.

Reviewer 2 Report

Thank you for the opportunity to review this revised manuscript. I am very pleased that the authors found my suggestions helpful. Overall, the manuscript is much improved and the contribution that the authors make to the literature is much clearer.

I think that the manuscript would benefit from an additional proofread to correct a few minor grammatical issues.

1. For example, on lines 29-30 the authors state: "Studies rooted in the agency theory (e.g., Jensen and Meckling, 1976) shows ..." should be "Studies rooted in agency theory (e.g., Jensen and Meckling, 1976) show ..." Also, on line 32-33 the authors state: "...building on the stakeholder theory (Freeman, 1984)..." should be "building on stakeholder theory (Freeman, 1984)..." Likewise on line 96, "...the stakeholder theory..." can just be "...stakeholder theory..."
2. On line 41, "moral assets", should have the comma inside the quotation marks. The general rule is that commas and periods are placed inside the quotation marks.
3. Also, the authors talk about two alternative predictions about the relationship between CSR and firm value in existing studies. However, on line 81 the authors state: "One of the hypothesis is overinvestment..." This is the singular form of hypothesis, which would suggest that there is only one alternative prediction and not two. You should use the plural form of hypothesis (i.e., hypotheses). "One of the hypotheses is overinvestment..." Alternatively, the authors could use the singular form of hypothesis if the authors write it as "One hypothesis is overinvestment..." as this does not preclude the existence of another hypothesis.
4. On line 101, the authors state: "Barnett (2007) further finds out that..." I think this sentence would read better if it was written as "Barnett (2007) further finds that..." The use of "finds out" is too colloquial.
5. On line 142, the authors state: "CSR reduces flexibility that respond to negative productivity shocks,..." As written, this isn't very clear. I recommend rewriting it as "CSR reduces the flexibility to respond to negative productivity shocks,..."
6. Also, I recommend using the Oxford comma when creating a list of items as it makes it easier for the reader to delineate each item in a sequence.

 

These are just some examples (not inclusive) of some minor issues that I believe the authors can easily address to further improve this manuscript. Sometimes having someone from outside the author team proofread the manuscript can be helpful. I use this technique often. I hope these suggestions are helpful.

Author Response

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Author Response File: Author Response.docx