Pessimistic Tone in Earnings Announcement and CSR Disclosure: Exploring the Interacting Role of CEO Busyness

Round 1

Reviewer 1 Report

Dear Authors,

Please find my comments attached. Congratulations for your work.

Best regards.   

Comments for author File: Comments.pdf

Author Response

Author's Reply to the Review Report (Reviewer 1)

Thank you for your helpful comments. We have revised your comments and highlighted with blue color the sections we have revised in the manuscript.

Point 1: Line 140-1 I suggest including the total size of the sample, that afterwards was reduced to 191 observations.

Response 1: We have added a sample selection table in the variable definition and data sources section.

Point 2: Line 168-71 I propose that the use of the software Diction is explicitly referred in the text, rather than just as the caption of Table 1.

Response 2: We have replaced the word table 1 with diction 7.0 at line 246

Point 3: Table 2 I recommend including the information regarding the instrumental variables and the variables in the additional analysis.

Response 3: We have added information regarding the instrumental variables and the variables in the additional analysis in table 2 and table 5. Value of AVE_TONE is most considerable than TONE because we times 100. We times 100 because the coefficient is too small.

Point 4: Table 3 It is not clear what criterion was used to classify firms into pessimistic tone / non-pessimistic tone firm. Are pessimistic tone firms the ones with pessimistic tone score above xx%? Or above the overall average (8.2%)? Or above the industry average?

Response 4: We have added criterion was used to classify firms into a pessimistic tone or non-pessimistic tone firm in lines 304-306.

Point 5: Line 214-21 The separation of decimals and thousands seems inconsistent. E.g., average number of boards is 11,366 11.366

Response 5: We have repair decimals and thousands in lines 318-325

Point 6: Tables 5-10 In the note below the tables, it should be specified that the figures in brackets are t-tests (rather than standard deviations).

Response 6: We have repair notes below tables 5 until table 10

Point 7: Line 287 The MILLS variable possibly could be referred as the Mills ratio.

Response 7: We have replaced the MILLS variable with Mills ratio.

Point 8: References This section has several incomplete references, e.g. [3] (among many others) do not include the name of the journal and doi.

Response 8: We have complete references include the name of the journal and doi.

Thank you for your appreciation and suggestion.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                               

Author Response File: Author Response.pdf

Reviewer 2 Report

The paper analyzes the relationship between the pessimistic tone in earnings announcements and CSR disclosure in companies listed on the Indonesia Stock Exchange in interaction with CEO busyness. The theoretical basis of the study is signaling theory and the main empirical instrument is ordinary least squares. Considering the importance of transparency in reporting all financial and non-financial aspects of the company's operations to external users and understanding the company's contribution to the achievement of sustainable development goals, it can be concluded that the topic of the paper is scientifically justified and relevant.

 

The main contributions of this research relate to the collection, processing and systematization of extensive data sources and the presentation and analysis of the newly obtained empirical results in accordance with the specifics of the empirical models and methods used. However, the paper has some gaps in its content that detract from the scientific contribution of the paper and the analytical value of the results obtained.Therefore, my recommendations for improving this article are as follows:

 

• I suggest structuring the first part of the paper a little differently, i.e. inserting the Literature Review chapter after the Introduction. The introduction should not only explain in more detail the relationship between the variables analyzed, but also their role and importance in the business decisions of external stakeholders, and provide further insights on the case of Indonesia in relation to the hypotheses of the paper. In this way, the results obtained from the empirical models used will have a much higher analytical and interpretative value. In fact, the paper only highlights the problem of information asymmetry in Indonesian public companies and the poor quality, inadequate or insufficient GRI reports that the companies publish. However, the reader does not gain insight into the main reasons for this, nor the general characteristics of the business environment in Indonesia, the corporate social responsibility situation in Indonesia, and finally the general practice of Indonesian companies in self-initiating solutions to social and environmental problems in their environment. By summarizing the findings from the above areas based on the available literature, the background of the relationships between the observed variables becomes much clearer to the reader. For example, it remains unclear or insufficiently argued whether it is alarming from the perspective of external users of corporate reports that companies with poorer financial forecasts and a higher burden on their CEO have higher levels of CSR disclosure. That is, is this a result of genuine effort and investment in social responsibility or is it mainly greenwashing or sustainability washing. Somehow, throughout the paper, the authors implicitly allude to the problem of greenwashing, but it is not explicitly mentioned anywhere.

 

• Accordingly, the literature review should provide a critical overview of the results of similar research, regardless of whether they use a similar methodological approach or address similar problems in other countries. Similarly, it would be particularly useful if this critical review moved to a comparison between developed and developing countries. For example, in low to middle income countries such as Indonesia, where economic development priorities are still more important than environmental protection, is a corporate sustainable development reporting system as developed and legitimate as in high income countries? This will shape the focus of the research in terms of the use of the results obtained, as it does not necessarily mean that the correlation relationships between the variables analyzed are the same in countries with different levels of economic development.I suggest that Chapters 3.1. and 3.2. be merged into a single Chapter 3.1. „Variable definition and data sources“. In this way, unnecessary multiple mentions of variables will be avoided and the comprehensibility of this part of the thesis will be increased. Thus, the authors should first define the variables and relate them to their abbreviations, then explain the criteria for determining the sampels, and finally introduce and describe the data sources used. The authors have applied an interesting approach to quantify the pessimistic tone in earnings announcements and the positive tone in CSR disclosures, but lack an argument as to why the relationship between the number of positive and negative words in earnings announcements and the number of disclosed and undisclosed items in CSR disclosures is equivalent value for the mentioned variables. If there is no relevant literature to prove this, it should be highlighted in the conclusion as one of the limitations of the study, as it is ultimately just an assumption. Indeed, the relationship between the number of words or items in reports does not necessarily reflect the performance of the companies.

 

• Chapter 3.3. should also be supplemented by a description of the tests used to determine the adequacy and reliability of the selected empirical models based on the relevant literature.

 

• In light of the guidelines for improving the paper outlined earlier, I suggest that the authors reword and further substantiate certain conclusions in Chapter 4 and, if necessary, adjust the conclusion of the paper.

Author Response

Author's Reply to the Review Report (Reviewer 2)

Thank you for your helpful comments. We have revised your comments and highlighted with yellow color the sections we have revised in the manuscript.

Point 1: The introduction should not only explain in more detail the relationship between the variables analyzed, but also their role and importance in the business decisions of external stakeholders, and provide further insights on the case of Indonesia in relation to the hypotheses of the paper. In fact, the paper only highlights the problem of information asymmetry in Indonesian public companies and the poor quality, inadequate or insufficient GRI reports that the companies publish. However, the reader does not gain insight into the main reasons for this, nor the general characteristics of the business environment in Indonesia, the corporate social responsibility situation in Indonesia, and finally the general practice of Indonesian companies in self-initiating solutions to social and environmental problems in their environment. By summarizing the findings from the above areas based on the available literature, the background of the relationships between the observed variables becomes much clearer to the reader. For example, it remains unclear or insufficiently argued whether it is alarming from the perspective of external users of corporate reports that companies with poorer financial forecasts and a higher burden on their CEO have higher levels of CSR disclosure. That is, is this a result of genuine effort and investment in social responsibility or is it mainly greenwashing or sustainability washing. Somehow, throughout the paper, the authors implicitly allude to the problem of greenwashing, but it is not explicitly mentioned anywhere.

Response 1: In first paragraph, we have deeply presented the reason why MD&A report and CSR disclosure needed in term of increasing transparency and reducing asymmetry information. We add case in Indonesia to describe the low degree of business competitiveness that bring lack of transparency and the high degree of asymmetry information. This case gain insight into the characteristics of the business environment in Indonesia. In fourth paragraph, we add the role and the importance of MD&A and CSR disclosure. Then, we mentioned greenwashing in lines 99-103.

Point 2: I suggest structuring the first part of the paper a little differently, i.e. inserting the Literature Review chapter after the Introduction. Accordingly, the literature review should provide a critical overview of the results of similar research, regardless of whether they use a similar methodological approach or address similar problems in other countries. Similarly, it would be particularly useful if this critical review moved to a comparison between developed and developing countries. For example, in low to middle income countries such as Indonesia, where economic development priorities are still more important than environmental protection, is a corporate sustainable development reporting system as developed and legitimate as in high income countries? This will shape the focus of the research in terms of the use of the results obtained, as it does not necessarily mean that the correlation relationships between the variables analyzed are the same in countries with different levels of economic development.

Response 2: After the introduction, we have given the literature review and the the general practice of Indonesian companies in self-initiating solutions to social and environmental problems through the example of greenwashing. We add the literature about difference practice MD&A textual disclosure in some countries because the lack literature of greenwashing practice in another countries. Thus, we represent the example case of greenwashing in Indonesia only.

Point 3: Chapters 3.1. and 3.2. be merged into a single Chapter 3.1. „Variable definition and data sources“. In this way, unnecessary multiple mentions of variables will be avoided and the comprehensibility of this part of the thesis will be increased. Thus, the authors should first define the variables and relate them to their abbreviations, then explain the criteria for determining the sampels, and finally introduce and describe the data sources used. The authors have applied an interesting approach to quantify the pessimistic tone in earnings announcements and the positive tone in CSR disclosures, but lack an argument as to why the relationship between the number of positive and negative words in earnings announcements and the number of disclosed and undisclosed items in CSR disclosures is equivalent value for the mentioned variables. If there is no relevant literature to prove this, it should be highlighted in the conclusion as one of the limitations of the study, as it is ultimately just an assumption. Indeed, the relationship between the number of words or items in reports does not necessarily reflect the performance of the companies.

Response 3: We have revised the composition of chapter 3 and deeply explain about the method that we used and present the equivalent value of optimistic and pessimistic tone also disclosure and undisclosure elements in CSR disclosure. We also add the reason why using diction 7.0 for pessimistic tone.

Point 4: Chapter 3.3. should also be supplemented by a description of the tests used to determine the adequacy and reliability of the selected empirical models based on the relevant literature.

Response 4: we have added previous studies that used analysis techniques similar to ours research and reason why we used those techniques

Point 5: I suggest that the authors reword and further substantiate certain conclusions in Chapter 4 and, if necessary, adjust the conclusion of the paper.

Response 5: In chapter 4, we have gain deeply insight not only the relationship between these variable but also the role and the importance for external parties. We have added the limitation of study in term of the lack of literature in CSR disclosure practice as greenwashing.

Thank you for your appreciation and suggestion

 

Author Response File: Author Response.pdf

Reviewer 3 Report

The paper is really interesting and well structured. I signal some elements to be improved before publication:

• The conclusions and the contribution to literature and practice could be improved.
• You write in the conclusions: "Unfortunately, the issuance of sustainability reports in Indonesia is still voluntary in some years of research..." You mast better explain if there has been a shift from a voluntary to a mandatory context. In this sense the description of a background context would be appreciable.
•  You write in the conclusions: "CSR disclosure is seen in total not per component". You must clarify and support this concept.
• A clearer explanation of the choice of the pessimistic words listed and used in the work would be appreciable. 

Author Response

Author's Reply to the Review Report (Reviewer 3)

Thank you for your helpful comments. We have revised your comments and highlighted with green color the sections we have revised in the manuscript.

Point 1: The conclusions and the contribution to literature and practice could be improved.

Response 1: We have improved our conclusions and contribution to literature and practice in lines 478-495

Point 2: You write in the conclusions: "Unfortunately, the issuance of sustainability reports in Indonesia is still voluntary in some years of research..." You mast better explain if there has been a shift from a voluntary to a mandatory context. In this sense the description of a background context would be appreciable

Response 2: We have explained that although OJK regulation No. 51/POJK.03/2017 was issued in 2017, CSR disclosure will become mandatory in 2022. Thus, during the year of this research, CSR disclosure in Indonesia is still voluntary. We inform about it in lines 497-499.

Point 3: You write in the conclusions: "CSR disclosure is seen in total not per component". You must clarify and support this concept.

Response 3: We have added previous research that used CSR Disclosure in total, similar to our research in line 502.

Point 4: A clearer explanation of the choice of the pessimistic words listed and used in the work would be appreciable.

Response 4: We give a more precise explanation of the choice of the pessimistic words listed and used in the research in lines 246-252.

Thank you for your appreciation and suggestion

 

Author Response File: Author Response.pdf

Round 2

Reviewer 3 Report

The paper has been improved and could be published in th epresent form