Eco-Innovation and Earnings Management: Unveiling the Moderating Effects of Financial Constraints and Opacity in FTSE All-Share Firms
Round 1
Reviewer 1 Report
Comments and Suggestions for AuthorsSee attached. Comments are in the attached PDF.
Comments for author File: 
Comments.pdf
Author Response
Dear Esteemed Reviewer
We thank the reviewer for the insightful and constructive feedback that has significantly improved the quality and clarity of our manuscript. Below, we provide a point-by-point response to each of the concerns raised and outline how they have been addressed in the revised manuscript, which hopefully can satisfy and fulfil the reviewer's expectations. All revisions are highlighted in green for clarity.
Here is a summary of our comments regarding the feedback from reviewers and concerns (in italics).
Reviewer 1
- EIS is defined as an eco-innovation score scaled by 100, but its components are not disclosed. A brief note clarifying the underlying metrics would improve construct validity.
Our Response: We sincerely thank the reviewer for the reminder. We add the definition of the eco-innovation score in Table 2.
- The paper suggests EM is opportunistic but uses DACC, which captures total EM. The authors should clarify whether they analyse total or opportunistic EM.
Our Response: We thank the reviewer for this important observation. In our empirical analysis, we use discretionary accruals (DACC) derived from the Kothari et al. (2005) model to proxy for earnings management. We acknowledge that DACC captures total discretionary accruals, which may reflect opportunistic and informative behaviours. However, consistent with prior literature (e.g., Chouaibi et al., 2019; Almubarak et al., 2023), we interpret higher DACC values in our specific context, characterised by financial opacity and ESG pressures, as indicative of opportunistic earnings management. We clarify this point in the manuscript (Section 3.2.1), adding justification and citations to support our interpretation.
- Incorporate Lagged Models to Strengthen Causal Inference
Our Response: We appreciate the reviewer’s suggestion to incorporate lagged models to enhance causal inference. However, we chose not to use lagged independent variables in our primary models for the following reasons: Eco-innovation scores in Refinitiv Eikon are structured to reflect firm activities and disclosures for the corresponding fiscal year. Introducing lags may misalign the theoretical timing of eco-innovation implementation and its reputational/financial effects. Using lags in this context may introduce measurement error, especially when the lagged value reflects older ESG ratings that are not representative of real-time managerial decision-making.
We acknowledge that lagged models remain a valuable tool in specific settings and have included this in the limitations section as a direction for future research. Specifically, future studies could explore dynamic relationships between eco-innovation and earnings management using multi-year lag structures or dynamic panel data methods such as System GMM, where appropriate data granularity is available.
- Subsample Testing by ESG Performance
Our Response: We sincerely thank the reviewer for this encouraging suggestion. The result of subsample testing by ESG performance can be seen in section 4.5
Author Response File: Author Response.pdf
Reviewer 2 Report
Comments and Suggestions for AuthorsThis is paper is easy to follow, the framework of article is well-organized and clear. Some suggested points as following.
Key words, please check what is “F65; O16; Q56.”
The section of 2. Literature Review and Hypothesis Development is good for readers, because the Literature Review is to assist what theories to support Hypothesis Development.
[Insert Table 3], [Insert Table 4], [Insert Table 5], [Insert Table 6], [Insert Table 7],
[Insert Table 8] should be showed in the content. Because the table 1 has shown but others have no shown.
The section 3. Research Design and Data is clearly, but how to analyze the collected data is not explained for readers understanding.
The section 5.Conclusion is not same font with others, please check all words are same type as journal format.
The section 5.Conclusion and 6.Limitations and Future Research should be made together. Because two sections are short and same meaning in a section.
The author should double check all the words after the “Compliance with ethical,” because some important information are not necessary to show in the end of 6.Limitations and Future Research. Which makes me confuse.
Totally, this paper is good enough to be considered for the journal. But author should more careful what the methodology has used.
Author Response
Dear Esteemed Reviewer
We thank the reviewer for the insightful and constructive feedback that has significantly improved the quality and clarity of our manuscript. Below, we provide a point-by-point response to each of the concerns raised and outline how they have been addressed in the revised manuscript, which hopefully can satisfy and fulfil the reviewer's expectations. All revisions are highlighted in green for clarity.
Here is a summary of our comments regarding the feedback from reviewers and concerns (in italics).
Reviewer 2
- Keywords, please check what is “F65; O16; Q56.”
Our Response: We keep Q56 for Environment and Development, Sustainability, Environmental Accounts and Accounting, Environmental Equity, and Population Growth. We change F65 and O16 to G32 for Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure; M41 for accounting; and O32 for Management of Technological Innovation and R&D.
- [Insert Table 8] should be showed in the content. Because the table 1 has shown but others have no shown.
Our Response: We apologise for the inconsistency and assure you that all tables are included in the content.
- The section 3. Research Design and Data is clearly, but how to analyze the collected data is not explained for readers understanding.
Our Response: We put a new subsection (Section 3.4: Data Analysis Strategy) to explain how the collected data is analysed. This includes a step-by-step breakdown of the statistical techniques used, their purposes, and how they relate to each hypothesis tested.
- The section 5. Conclusion is not same font with others, please check all words are same type as journal format.
Our Response: We apologise for the inconsistency and assure you that all fonts are consistent in the content.
- The section 5. Conclusion and 6. Limitations and Future Research should be made together. Because two sections are short and same meaning in a section.
Our Response: We combine sections 5 and 6, merging the title into "Conclusion."
- The author should double-check all the words after the “Compliance with ethical,” because some important information is not necessary to show at the end of 6. Limitations and Future Research.
Our Response: We apologise for our errors. We correct them and are adhering to the sustainability journal format.
- The author should be more careful about what methodology they use.
Our Response: We thank the reviewer for the constructive comment regarding the methodological rigour of our study. In response to this comment, we clarify our methodological justifications in Section 3 and add more precise explanations regarding variable definitions, assumptions, and robustness techniques. We hope this better conveys the robustness and appropriateness of our chosen methods.
Author Response File: Author Response.pdf
Reviewer 3 Report
Comments and Suggestions for AuthorsThe manuscript provides a valuable contribution to sustainability research, however, several aspects require attention to strengthen its theoretical foundation. The literature review would benefit from incorporating more recent publications from 2023-2024 to ensure the most current theoretical perspectives are represented. While the current theoretical framework is adequate, the manuscript would be enhanced by more explicitly demonstrating how this study builds upon or challenges existing models in the field. A more nuanced discussion of competing theoretical frameworks would help readers better understand the study's positioning within the broader academic discourse. Additionally, the connection between theoretical concepts and empirical approach could be more clearly articulated through a dedicated synthesis paragraph, helping readers understand the logical progression from theory to practice.
Research Design
The research design section is generally well-structured; however, further refinement would enhance the manuscript's rigor and clarity. In particular, a more detailed justification for the sample size is recommended, as this information would help readers assess the statistical power and generalizability of the findings. Moreover, the methodology would benefit from an explicit discussion of its limitations, including potential biases and alternative designs that were considered but ultimately not employed. Providing a clear rationale behind the chosen data collection procedures and the specific tools or instruments used would also strengthen the reliability of the methods. Finally, adding a concise methodological framework diagram could offer a helpful visual summary, allowing readers to quickly grasp the overall research design and how it aligns with the study's objectives.
Conclusions
The conclusion section requires refinement to maximize its impact and utility. While the current conclusions are generally sound, they could be more explicitly linked to the study's findings. The practical implications of the research should be more clearly articulated, particularly for industry practitioners and policymakers. A more detailed discussion of how the findings contribute to both theoretical understanding and practical application would strengthen this section. The manuscript would benefit from a more structured presentation of future research directions, specifically identifying gaps that emerged during the study. Additionally, the limitations of the study should be more thoroughly addressed, along with suggestions for how these might be overcome in future research. These revisions would help readers better understand the study's contribution to the field and its practical significance.
Author Response
Dear Esteemed Reviewer
We thank the reviewer for the insightful and constructive feedback that has significantly improved the quality and clarity of our manuscript. Below, we provide a point-by-point response to each of the concerns raised and outline how they have been addressed in the revised manuscript, which hopefully can satisfy and fulfil the reviewer's expectations. All revisions are highlighted in green for clarity.
Here is a summary of our comments regarding the feedback from reviewers and concerns (in italics).
Reviewer 3
- The literature review would benefit from incorporating more recent publications from 2023-2024 to ensure the most current theoretical perspectives are represented
Our Response: We update the literature review to include recent studies from 2023 and 2024 that align with our research focus. These additions encompass contemporary perspectives on stakeholder engagement in eco-innovation, the influence of corporate governance on environmental strategies, and the market implications of eco-innovation efforts.
- A more nuanced discussion of competing theoretical frameworks would help readers better understand the study's positioning within the broader academic discourse.
Our Response: We appreciate this suggestion. Section 2.3 (*Theoretical Underpinning*) expands the discussion to incorporate competing frameworks, including legitimacy, agency, and cash flow theories. This addition enhances the theoretical depth of our argument and contextualises our hypotheses within broader academic debates on environmental innovation and earnings management.
- The connection between theoretical concepts and the empirical approach could be more clearly articulated through a dedicated synthesis paragraph.
Our Response: A synthesis paragraph is added at Section 2.4 (*Hypothesis Development*). This paragraph connects our theoretical rationale to operationalising variables and modelling choices, clarifying the research design's logic.
- A more detailed justification for the sample size is recommended, as this information would help readers assess the statistical power and generalizability of the findings.
Our Response: We include a justification for the sample size in Section 3.1 (*Sample Selection*), noting that the sample size is sufficiently large to ensure statistical power and reflects the diversity of firms in the FTSE All-Share Index, enhancing generalizability within the UK context.
- The methodology would benefit from an explicit discussion of its limitations, including potential biases and alternative designs that were considered but ultimately not employed.
Our Response: We add a new limitation regarding methodology in Section 5. This section outlines the limitations of using secondary data and the constraints in applying alternative methods such as instrumental variables or structural equation modelling.
- Providing a clear rationale behind the chosen data collection procedures and the specific tools or instruments used would also strengthen the reliability of the methods.
Our Response: We expand Section 3.1 to include a justification of our use of the Refinitiv Eikon database, discussing its widespread academic use and reliability in capturing standardised ESG and financial metrics.
- Adding a concise methodological framework diagram could offer a helpful visual summary, allowing readers to grasp the overall research design and how it aligns with the study's objectives quickly.
Our Response: We add Figure 1 (Methodological Framework of the Study), which visually presents the logical flow from theory to empirical strategy. This figure is inserted after Section 3.4 and includes a caption to guide interpretation.
- While the current conclusions are generally sound, they could be more explicitly linked to the study's findings.
Our Response: We revise the first paragraph of the Conclusion section to explicitly restate and connect the empirical findings with each of the study’s hypotheses.
- The practical implications of the research should be more clearly articulated, particularly for industry practitioners and policymakers.
Our Response: The conclusion now includes an expanded discussion of practical implications, specifically addressing regulatory and investor perspectives on how eco-innovation may obscure actual financial performance under weak transparency.
- A more detailed discussion of how the findings contribute to both theoretical understanding and practical application would strengthen this section.
Our Response: We include a dedicated paragraph in the Conclusion summarising the theoretical and practical contributions separately to clarify how the study advances knowledge in both domains.
- The manuscript would benefit from a more structured presentation of future research directions, specifically identifying gaps that emerged during the study.
Our Response: At the end of section 5 (last paragraph), we add a Future Research idea outlining several specific ideas for further inquiry, including cross-country comparisons, qualitative interviews, and expanded ESG dimensions.
- Additionally, the limitations of the study should be more thoroughly addressed, along with suggestions for how these might be overcome in future research.
Our Response: The Limitations section now includes more details about challenges in construct measurement, such as opacity and constraint proxies, along with recommendations for addressing these issues in future studies.
Author Response File: Author Response.pdf
