The Financial Sustainability of State-Owned Enterprises in an Emerging Economy

Round 1

Reviewer 1 Report

This is an interesting study, but some essential elements need to be corrected, so a review opinion of revision is presented.

This study looked at the effect of government intervention on the financial sustainability of SOE, and the authors present a differentiation point in that they analyzed panel data using an econometric model rather than a case study or annual data. The authors also emphasized that they looked at the impact of COVID-19.

However, on page 313 for example, this study refers to the previous studies that have demonstrated a negative relationship between government ownership and financial performance. If so, how can this study differentiate it from those previous studies? Is it from finding the threshold point? The problem is that the hypotheses may be fundamentally identical, and methodological improvements alone can limit the qualification as a new paper. It is recommended that this possibility be checked, and the authors explain it or write it as a limitation of this paper.

In addition, what this paper wanted to show is not summarized as hypotheses. A paper can be more systematically organized by arranging and presenting hypotheses at the end of or next to the literature part, and presenting their rationale (even if they have been presented in the introduction and other parts of the paper). The hypotheses that should be presented seem to be "the impact of government intervention on financial sustainability" and "the impact of COVID-19 on the financial sustainability depending on government intervention" (I'm just giving an example, I may have misunderstood).

The extreme values in the descriptive statistic may create a high standard deviation, which may cause heteroscedasticity problems. Therefore, when managing panel data in corporate research, it is often recommended to clean extreme values by winsorization. I recommend controlling extreme values, such as by 1% winsorization.

Model 3 shows both ROA and ROE. Is it true that no ROA was used in this study? Please confirm and correct it. In addition, if DA is for the robustness test of DE, is it correct that they appear in the first and second half of model 3?

If the number of control variables in the model is insufficient, the test result of the variable of interest can be exaggerated. Most studies on corporate performance will use control variables greater than two. If consistency with previous studies was necessary, it could be rationalized by presenting those studies with similar models. 

Specifically, for what period was the COVID-19 variable defined? Most COVID-19 studies define it as a specific quarter or year dummy.

Author Response

Response to Reviewer 1 Comments

Point 1:

However, on page 3 of 13 for example, this study refers to the previous studies that have demonstrated a negative relationship between government ownership and financial performance. If so, how can this study differentiate it from those previous studies? Is it from finding the threshold point? The problem is that the hypotheses may be fundamentally identical, and methodological improvements alone can limit the qualification as a new paper. It is recommended that this possibility be checked, and the authors explain it or write it as a limitation of this paper.

Response 1: 

We appreciate your insightful advice, the literature review part is refined according to your suggestions, and we added research gap, novelty, and hypotheses in the new content. (In sections 2.1 to 2.3) 

Point 2:

In addition, what this paper wanted to show is not summarized as hypotheses. A paper can be more systematically organized by arranging and presenting hypotheses at the end of or next to the literature part, and presenting their rationale (even if they have been presented in the introduction and other parts of the paper). The hypotheses that should be presented seem to be "the impact of government intervention on financial sustainability" and "the impact of COVID-19 on the financial sustainability depending on government intervention" (I'm just giving an example, I may have misunderstood).

Response 2:

Thank you for your suggestion. We added hypotheses development in the literature review part. (In section 2.3) 

Point 3:

The extreme values in the descriptive statistic may create a high standard deviation, which may cause heteroscedasticity problems. Therefore, when managing panel data in corporate research, it is often recommended to clean extreme values by winsorization. I recommend controlling extreme values, such as by 1% winsorization.

Response 3:

Thank you for this helpful advice. We did winsorization on all data and found Taiwan data is invalid to test the dynamic panel regression. Therefore, we just rerun the estimation of Malaysia and show the new finding in Tables 1 to 5 and rewrite the result according to the latest estimated results. (In sections: 3.2, 3.3, 4.1, 4.2 and 4.3) 

Point 4:

Model 3 shows both ROA and ROE. Is it true that no ROA was used in this study? Please confirm and correct it. In addition, if DA is for the robustness test of DE, is it correct that they appear in the first and second half of model 3?

Response 4:

Thank you for pointing out this typo. It should be ROE and DE, which we corrected in model 3. ( on page 8) 

Point 5:

If the number of control variables in the model is insufficient, the test result of the variable of interest can be exaggerated. Most studies on corporate performance will use control variables greater than two. If consistency with previous studies was necessary, it could be rationalized by presenting those studies with similar models. 

Response 5:

We appreciate this advice. However, the control variables adopted by previous studies are various according to companies' features. Therefore, we used the most common control variables (i.e., size and age) among prior studies and added the explanation and citation in the methodology part. (In section 3.2)

Point 6:

Specifically, for what period was the COVID-19 variable defined? Most COVID-19 studies define it as a specific quarter or year dummy.

Response 6:

Thank you for your advice. We provided the detail of the COVID-19 dummy variable in table 2. (On page 9) 

Reviewer 2 Report

Review comment of

“Financial sustainability of state-owned enterprises in emerging economies”

Economies # 1836968

 

Overall comment:

This study finds that SOEs of Malaysia and Taiwan could reach financial sustainability only if the government ownership is below the threshold (26% and 22%, respectively). Although the study contributes to the literature in some ways, I see several critical points need to be improved. Please refer to the followings.

 

1. Introduction

It would be nice to include a summary of the empirical results in the introduction part. By doing so, even if we do not read the latter part, one can check the contents of the empirical evidences through the introduction part.

 

2. Literature review

The contents of Chapter 2 need to be completely reorganized. Prior studies on the contents to be investigated in this study should be presented. It would be better to modify it as follows:

2.1 Prior studies on SOEs
2.2 Prior studies on Financial Sustainability
2.3 Hypothesis development

In particular, please search for the appropriate prior studies for each part (about the SOEs and financial sustainability). The current state of literature review consists of contents that are not directly related to this study, so a complete modification is required. Next, I recommend to report the study’s hypothesis. It gives a more direct understanding of the paper’s investigation.

 

3. Description of the results

Please describe the empirical results in a more scientific way. For instance, Table 5 compares the higher and lower regime but I do not see the results of higher regime in this table. Furthermore, the definition of higher or lower regimes are not described in the paper.

 

4. Robustness of the results

As like in most of other studies, this paper needs more investigation to support its findings’ robustness. For instance, the study uses debt-to-asset and ROE relationship when testing the financial sustainability of SOEs. Try ROA (return on assets) rather than ROE as because leverage ratio is also scaled by the assets.

Author Response

Response to Reviewer 2 Comments

Point 1: Introduction

It would be nice to include a summary of the empirical results in the introduction part. By doing so, even if we do not read the latter part, one can check the contents of the empirical evidences through the introduction part.

Response 1:

Thank you for your suggestion. However, the empirical studies on SOEs and financial sustainability are limited. We searched articles by Scopus set key words "State-owned enterprises" and "Financial sustainability" and found only four pieces. Three of them are case studies, and one is stimulation. Based on this shortage, we cannot prepare a summary of the empirical results in the introduction. (Appendix 1) 

Point 2: Literature review

The contents of Chapter 2 need to be completely reorganized. Prior studies on the contents to be investigated in this study should be presented. It would be better to modify it as follows:

2.1 Prior studies on SOEs
2.2 Prior studies on Financial Sustainability
2.3 Hypothesis development

Response 2:

We appreciate your insightful advice, the literature review part is refined according to your suggestions, and we added research gap, novelty, and hypotheses in the new content. (In sections 2.1 to 2.3)

Point 3: 

In particular, please search for the appropriate prior studies for each part (about the SOEs and financial sustainability). The current state of literature review consists of contents that are not directly related to this study, so a complete modification is required. Next, I recommend to report the study's hypothesis. It gives a more direct understanding of the paper's investigation.

Response 3: 

Thank you for your suggestion. In response 1, the empirical studies on SOEs and financial sustainability are limited. Therefore, we prepare a literature review of overall financial sustainability. (In section 2.2) 

Point 4: Description of the results

Please describe the empirical results in a more scientific way. For instance, Table 5 compares the higher and lower regime but I do not see the results of higher regime in this table. Furthermore, the definition of higher or lower regimes are not described in the paper.

Response 4:

Thank you for pointing out this. We restructured tables 5 and 6 and added a "higher regime" column inside those tables. (In sections 4.1 and 4.3) 

Point 5: Robustness of the results

As like in most of other studies, this paper needs more investigation to support its findings' robustness. For instance, the study uses debt-to-asset and ROE relationship when testing the financial sustainability of SOEs. Try ROA (return on assets) rather than ROE as because leverage ratio is also scaled by the assets.

Response 5:

We appreciate this suggestion. We adopted ROA and debt-to-asset ratio for the robustness test, and the new findings show in table 6. (In section 4.3) 

Author Response File: Author Response.pdf

Reviewer 3 Report

Thank you for the opportunity of reading and reviewing your interesting manuscript. The article addresses a topic which is of high importance and falls under the scope of the journal. The paper is well written, with adequate literature background and contextualization, and a well performed statistical research. Some improvements can be made regarding the literature, this part is not the most developed part of the paper, and the number of referenced titles is quite low given the topic. 

Regarding the reserach, the discussion section is missing and very brief discussion of the results is present in other sections of the paper. I consider this issue can be improved.

Moreover, the implications of the study are presented also in a very short way, and a more detailed insight cand be given.

Otherwise, I appreciate the reserach is clean and the paper is well written.

Good luck!

Author Response

Response to Reviewer 3 Comments

Point 1:

Some improvements can be made regarding the literature, this part is not the most developed part of the paper, and the number of referenced titles is quite low given the topic. 

Response 1:

We appreciate your insightful advice, the literature review part is refined according to your suggestions, and we added research gap, novelty, and hypotheses in the new content. (In section 2) 

Point 2:

Regarding the reserach, the discussion section is missing and very brief discussion of the results is present in other sections of the paper. I consider this issue can be improved.

Response 2:

Thank you for pointing out this improvement. We add the discussion section in the new content. (In section 4.2) 

Point 3:

Moreover, the implications of the study are presented also in a very short way, and a more detailed insight cand be given.

Response 3:

Thank you for this insightful advice. We extend the policy implication in the new content. (On pages 15 to 16) 

Round 2

Reviewer 1 Report

Most of the questions I raised were resolved by the authors' corrections.

Author Response

Thank you for your insightful feedback and constructive suggestion. These make our study more robust. We appreciate it. 

Reviewer 2 Report

Review of "Financial sustainability of state-owned enterprises in emerging economies" - 2nd round-

I appreciate authors’ effort to reflect my previous review comments. Most of them are well revised but still following two suggestions are not reflected in the manuscript.

(1) Introduction

It would be nice to include a summary of the empirical results in the introduction part. By doing so, even if we do not read the latter part, one can check the contents of the empirical evidences through the introduction part.

In this comment, I suggest to report the summary of the empirical findings of current study, not the prior research.

 

(2) Next, I recommend to report the study’s hypothesis. It gives a more direct understanding of the paper’s investigation.

Hypothesis should be written separately in section 2.3.

For instance,

Hypothesis: there is a positive relationship between return on assets and debt to assets ratio of SOE firms.

 

Author Response

Point 1: 

(1) Introduction

It would be nice to include a summary of the empirical results in the introduction part. By doing so, even if we do not read the latter part, one can check the contents of the empirical evidences through the introduction part.

In this comment, I suggest to report the summary of the empirical findings of current study, not the prior research.

Response 1:

Thank you for patiently explaining it. We added the summary of our empirical findings in the second paragraph on page 3.

Point 2: 

(2) Next, I recommend to report the study’s hypothesis. It gives a more direct understanding of the paper’s investigation.

Hypothesis should be written separately in section 2.3.

For instance,

Hypothesis: there is a positive relationship between return on assets and debt to assets ratio of SOE firms.

Response 2:

Thank you for the guidance. We refined it accordingly in section 2.3 on page 5.