The Effect of ESG Activities on Financial Performance during the COVID-19 Pandemic—Evidence from Korea

Round 1

Reviewer 1 Report

Purpose of study and results are concisely presented, and research questions have been addressed. I believe that the paper provides an original perspective, namely the assessment of the effect of a firm’s ESG activities on its financial performance under the uncertainty of the Covid-19 context.

Anyway, I believe that, in its current status, the paper has some flaws that limit its possibilities to be considered for publication. Therefore, I provide here a list of comments about the paper.

First of all, a significant drawback of this work is that the authors support a logical connection between the research question (whether or not firm’s ESG activities affect its financial performance under the uncertainty of the Covid-19 context) and the argument that "ESG activities play an important role in increasing a firm’s value". I believe this assumption does not logically derive by the stated research question. In fact, the paper investigates the possible association between ESG activities and firm's performance in a context of Covid-19 pandemic and consequent uncertainty. Even if I trust the results authors provide, I believe that the results could not lead to the conclusion that ESG ratings overall affect performance. At most, results address the research question, that is specifically located in a context of pandemic driven uncertainty. Therefore, I suggest the authors to make this aspect as clear as possible since the abstract and the Introduction.

Moreover, I believe that the possible association between ESG activities and financial performance is not accurately developed in the literature section. Authors should consider that external stakeholders often base their decision process on the information that companies provide to the recipients of annual and interim reports. Several studies have investigated how and to what extent companies provide financial and nonfinancial information to stakeholders. Among these studies, some have also investigated the possible association between nonfinancial information (NFI) (that often includes ESG information) and companies' performance. Some studies have investigated the relationship between NFI quality and companies’ financial performance along with market performance. For instance, the reviewed paper does not consider at all the market performace, but limits to the company's financial performance through ROA, and this could be another limitation of this study. Further, other studies have also investigated how NFI mediates the association between financial information quality and companies' performance. To this end I suggest to carefully consider this aspect in the paper as it could be very relevant to highlight as stakeholder value the companies' activities through the information flow companies provide them with. I also think that authors should be more precise and clearer in describing the context of their analysis, providing definitions, and defining the borders of their analysis. Here are some examples of previous articles that could help:

S Veltri, F De Luca, HTP Phan, 2020, Do investors value companies' mandatory nonfinancial risk disclosure? An empirical analysis of the Italian context after the EU Directive, Business Strategy and the Environment 29 (6), 2226-2237.

HTP Phan, F De Luca, L Iaia, 2020, The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance? Sustainability 12 (6), 2324

Furthermore, I believe that the choice of a single country experience, namely Korea, should be better motivated. Often, the choice of a single country analysis presents a weakness due to the possible limited generalizability power of the provided results (as the authors admit in the Conclusion) and this probably makes the article less interesting for an international audience. Therefore and more so, it is necessary to support this choice with stronger motivation.

Authors should also provide research and practical implications of the study with reference to impact on academic research and on regulators policies.

I take the chance to wish you best luck with this research.

Author Response

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Author Response File: Author Response.pdf

Reviewer 2 Report

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Comments for author File: Comments.pdf

Author Response

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Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

I believe that the paper has significantly improved, and author/s addressed my comments to previous version.

Good luck!

Reviewer 2 Report

Good job.