Does Capital Expenditure Matter for ESG Disclosure? A UK Perspective

Round 1

Reviewer 1 Report

Overall, the topic of this paper is novel and innovative in examining the relationship between capital expenditure (capex) and ESG disclosure, and the moderating role of corporate governance, based on stakeholder and resource dependence theories. However, there are some aspects of the paper that need further improvement:

1. The sample selection has some limitations. The paper only uses non-financial firms in the UK's FTSE All Share index, without considering industry differences. It is suggested to expand the sample to include listed companies from different countries and industries, to enhance the generalizability of the findings.
2. The research hypotheses can be further refined. The author may consider whether the type and scale of capex could affect the conclusions, and if there are non-linear relationships or threshold effects.
3. The variable measurements can be more comprehensive and accurate. ESG disclosure could adopt more extensive frameworks like GRI. Corporate governance can also incorporate more diverse measurement metrics.
4. The practical implications of the findings should be further discussed and elaborated, to provide clearer guidance for companies, investors and regulators.
5. It is advisable to improve the discussion of research limitations, such as endogeneity, measurement errors, disclosure quality differences, and their potential influences on the conclusions.
6. More extensive avenues for future research can be designed, such as comparing different disclosure frameworks, longitudinal observations over time, etc.
7. The language expression of the paper needs further polishing to enhance clarity and coherence of the arguments.

In conclusion, while the topic is meaningful and the overall framework is reasonable, this paper needs further improvement regarding sample selection, hypothesis development, variable measurement, empirical methodology, result discussion, etc., to increase the quality and persuasiveness of the research.

 Minor editing of English language required

Author Response

Journal of risk and financial Management

Manuscript ID: jrfm-2620955, Title: "Does Capital Expenditure Matter for ESG Disclosure? A UK Perspective".

Response to the editor and reviewers’ comments:
I would like to express my gratitude to the editor and the reviewers for
their constructive and helpful comments, which have enabled me to
improve the quality of the manuscript. I have revised the manuscript
according to their suggestions and provided detailed responses to each
comment below.
Sincerely,
Dr. Ahmed Saber Moussa

 

 

Acknowledgment:

Before addressing the reviewer's valuable comments, we would like to express our sincere gratitude for their thoughtful and constructive feedback. Their insights have greatly contributed to the refinement and strengthening of our manuscript.

 

Title:  Does Capital Expenditure matter for ESG Disclosure? A UK Perspective

Abstract:

This study investigates the relationship between capital expenditure (capex) and Environmental, Social, and Governance (ESG) disclosure among non-financial firms listed on the UK's FTSE All Share index. We examine the moderating role of governance in this relationship and discuss its implications for theory and practice. Our analysis relies on data from Bloomberg spanning the period from 2012 to 2021.

1. Sample Selection and Generalizability

Reviewer's Comment: The sample selection has some limitations. The paper only uses non-financial firms in the UK's FTSE All Share index, without considering industry differences. It is suggested to expand the sample to include listed companies from different countries and industries, to enhance the generalizability of the findings.

Author's Response: We've acknowledged the sample selection limitation in our paper's 'Limitations' section. While we understand the suggestion to expand the sample to include companies from different countries and industries for improved generalizability, our study's current focus is on non-financial firms in the UK's FTSE All Share index, aligning with our research objectives. We appreciate the idea for future research and will consider it.

2. Refinement of Research Hypotheses

Reviewer's Comment: The research hypotheses can be further refined. The author may consider whether the type and scale of capex could affect the conclusions, and if there are non-linear relationships or threshold effects.

Author's Response: We acknowledge the importance of refining research hypotheses and exploring various factors related to capital expenditure (capex) in our paper. In the introduction section of our paper, we have already acknowledged the need to investigate the influence of different types and scales of capex on ESG disclosure. We emphasize the importance of considering factors such as expenditure magnitude and type in understanding the impact of capex on ESG disclosure outcomes. Our study's primary objective was to establish the existence of a relationship between capex and ESG disclosure, providing a foundational exploration of this relationship.

As highlighted in the "Suggestions for Future Research" section, we explicitly identified investigating the influence of different ESG disclosure frameworks and reporting standards on capital expenditure decisions as a promising avenue for future research. We recognize that various ESG frameworks, such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), and Sustainable Development Goals (SDGs), may impact how companies assess and disclose ESG information. This future research direction will involve a more nuanced examination of the interplay between specific capex types and ESG disclosure across various ESG frameworks. By doing so, we aim to gain a deeper understanding of the intricacies involved, including potential non-linear relationships or threshold effects, which will address your insightful suggestion.

 

3. Comprehensive and Accurate Variable Measurements

Reviewer's Comment: The variable measurements can be more comprehensive and accurate. ESG disclosure could adopt more extensive frameworks like GRI. Corporate governance can also incorporate more diverse measurement metrics.

Author's Response: We acknowledge the importance of more comprehensive ESG measures such as the Global Reporting Initiative (GRI) framework and the Bloomberg ESG Disclosure Score. We recognize that relying on aggregated metrics, like CSR scores, may not capture the full breadth of ESG aspects and dimensions relevant to different stakeholders. This acknowledgment underscores our commitment to rigorous and comprehensive variable measurements in future research.

Furthermore, we outlined in our "Suggestions for Future Research" section the necessity of investigating the influence of different ESG disclosure frameworks and reporting standards on capital expenditure decisions. We explicitly mentioned that our study employed a single measure of ESG disclosure based on the Bloomberg ESG Disclosure Score. We acknowledge that this measure may not encompass all the frameworks and standards utilized by companies to disclose their ESG information. Our intention in discussing these limitations and suggesting avenues for future research is to emphasize the evolving nature of the ESG landscape and the need for more comprehensive and diverse measurement metrics. We aim to underscore the importance of exploring these nuances in subsequent studies.

4. Discussion of Practical Implications

Reviewer's Comment: The practical implications of the findings should be further discussed and elaborated, to provide clearer guidance for companies, investors, and regulators.

Author's Response: We have taken your suggestions into account and would like to respond by outlining the additional content we have included in the revised version of our paper.

Implications for Companies:

We have expanded upon the practical implications for companies in our revised manuscript. We now emphasize the importance of companies carefully considering the potential benefits and costs associated with investing in capital expenditures (capex) aligned with their ESG goals and impacts. Our revised text now provides clearer guidance, encouraging companies to assess the feasibility and viability of their capex decisions. We

 highlight that while such investments can enhance a company's competitive advantage and market position, they should also be aware of the challenges and risks that may arise. This includes increased capital requirements, operational complexity, and heightened stakeholder scrutiny. Companies are now encouraged to strike a balance between their short-term and long-term objectives and outcomes.

Implications for Investors:

Our revised manuscript now provides additional insights for investors. We underscore the significance of incorporating ESG disclosure into their investment analysis and decision-making processes. This information can aid investors in evaluating a company's growth potential, sustainability, and risk management strategies. We have emphasized the importance of caution, suggesting that investors critically examine the quality and reliability of ESG disclosure, recognizing that it may vary across companies, industries, frameworks, and standards. We encourage investors to scrutinize the sources, methods, and assumptions behind ESG disclosure, comparing it with other relevant indicators or benchmarks to make well-informed investment decisions.

Implications for Regulators:

The revised version of our manuscript includes a more detailed discussion of the implications for regulators. We highlight the role of regulatory policies in influencing the behavior and performance of companies and investors. Regulators are encouraged to develop and implement effective policies related to ESG disclosure and capital allocation. Our text emphasizes the potential impact of such policies in encouraging companies to invest in capex that aligns with their social and environmental goals. We also emphasize that regulators can promote higher governance standards, encompassing board composition, oversight, independence, diversity, and accountability. In doing so, regulators can foster transparency, responsibility, and stronger stakeholder relations, ultimately enhancing value creation.

 

5. Reviewer's Comment: It is advisable to improve the discussion of research limitations, such as endogeneity, measurement errors, disclosure quality differences, and their potential influences on the conclusions.

Author's Response : In response to your insightful feedback regarding the discussion of research limitations, we have taken steps to enhance our manuscript's transparency and rigor:

Endogeneity: We have expanded the discussion concerning the potential endogeneity of our study. While we employed the 2008 SEO deregulation in the UK as an instrumental variable to mitigate endogeneity concerns, we recognize that this event might have had indirect effects on ESG disclosure decisions. These indirect effects may have included changes in market conditions, investor expectations, and stakeholder pressures. To further address endogeneity concerns, we have suggested future research avenues, such as exploring alternative instrumental variables or adopting methodological approaches like natural experiments, quasi-experiments, or panel data analysis. These methodological refinements aim to bolster the robustness of our findings and provide a more thorough examination of the endogeneity issue.

Measurement Errors: In response to your suggestion, we have delved deeper into the discussion of measurement errors associated with capital expenditure (capex), governance, and ESG disclosure variables. We recognize that our measurement techniques may have certain limitations in capturing the full spectrum of these constructs. Specifically, our measures may not fully encompass all aspects or dimensions of capex, governance, and ESG disclosure. For example, we acknowledge that our measures may not reflect the quality, efficiency, or effectiveness of capital expenditures. Furthermore, we recognize that there may be various factors influencing corporate governance practices and the diversity of ESG disclosure frameworks and standards that our measures may not fully encapsulate. To address these concerns, we encourage future research to explore alternative measures or indicators that provide a more comprehensive and accurate assessment of these constructs.

Disclosure Quality Differences: Our revised manuscript includes an extended discussion regarding the limitations associated with using a single measure of ESG disclosure, specifically the Bloomberg ESG Disclosure Score. We acknowledge that this measure may not entirely capture the quality differences in ESG disclosure across different companies, industries, frameworks, and standards. In our updated discussion, we provide greater context on how variations in ESG disclosure quality can exist both within and between companies, industries, and standards. Additionally, we emphasize that some frameworks or standards may have more stringent or specific requirements for disclosing certain aspects of ESG performance or impact. To address these concerns, we encourage future research to explore alternative measures or methodologies that can effectively assess the quality differences in ESG disclosure and investigate how these differences relate to capex decisions.

 

6. Reviewer comment : More extensive avenues for future research can be designed, such as comparing different disclosure frameworks, longitudinal observations over time, etc.

Author's Response: Thank you for your constructive feedback regarding potential avenues for future research. We have thoughtfully incorporated your suggestions into our discussion on future research directions:

Comparing Different Disclosure Frameworks: In response to your recommendation, we have included a discussion that underscores the importance of comparing various ESG disclosure frameworks and standards. We acknowledge that our study relied on the Bloomberg ESG Disclosure Score as a singular measure of ESG disclosure, which may not fully encompass the diverse array of frameworks and standards utilized by companies. To address this limitation, we have suggested that future research explore these frameworks and standards, such as GRI, SASB, TCFD, or SDGs. Investigating how specific frameworks' requirements or guidelines for disclosing various ESG aspects or dimensions influence capex decision-making processes will offer a more comprehensive understanding of their effects. This exploration is vital in addressing stakeholder expectations and pressures and will provide nuanced insights into capex decisions.

Longitudinal Observations Over Time: Building upon your recommendation, we have emphasized the value of longitudinal observations in future research endeavors. While our study adopted a cross-sectional approach to investigate the capex-ESG disclosure relationship at a specific moment in time, we recognize the significance of a longitudinal perspective. Future research can benefit from this approach, enabling scholars to track changes in capex and ESG disclosure practices over time and explore their dynamic interplay. We suggest that such research can delve into the causal mechanisms and dynamics between capex and ESG disclosure over time, ultimately deepening our understanding of their effects on a company's financial performance and overall value.

By integrating these expanded discussions on research limitations and future research avenues into our manuscript, we aim to fortify the overall quality and robustness of our research. Your thoughtful review has been instrumental in enhancing our work, and we sincerely appreciate your valuable input.

 

7. Reviewer's Comment: The language expression of the paper needs further polishing to enhance clarity and coherence of the arguments.

Author's Response: We would like to inform him that we have indeed made significant efforts to enhance the clarity and coherence of our paper's language expression. We have carefully revised and polished the manuscript to ensure that the arguments are presented in a more lucid and organized manner. Our aim has been to make the paper more accessible and reader-friendly, and we hope these improvements have addressed the reviewer's concern.

 

Reviewer's Comment: In conclusion, while the topic is meaningful and the overall framework is reasonable, this paper needs further improvement regarding sample selection, hypothesis development, variable measurement, empirical methodology, result discussion, etc., to increase the quality and persuasiveness of the research.

 

Thank you for your comprehensive feedback on our paper. We sincerely appreciate your thoughtful comments and suggestions. We have taken your input seriously and made substantial revisions to address the issues you raised regarding sample selection, hypothesis development, variable measurement, empirical methodology, and result discussion. We believe these improvements have significantly enhanced the quality and persuasiveness of our research. Your insights have been invaluable in strengthening our work, and we are grateful for your constructive feedback.

Best regards,

Dr. Ahmed Saber Moussa

Author Response File: Author Response.docx

Reviewer 2 Report

Thank you so much for the opportunity to read this very interesting paper.

Good Luck!

Best Regards,

The Reviewer

Comments for author File: Comments.pdf

Author Response

Journal of risk and financial Management

Manuscript ID: jrfm-2620955, Title: "Does Capital Expenditure Matter for ESG Disclosure? A UK Perspective".

Response to the editor and reviewers’ comments:
I would like to express my gratitude to the editor and the reviewers for
their constructive and helpful comments, which have enabled me to
improve the quality of the manuscript. I have revised the manuscript
according to their suggestions and provided detailed responses to each
comment below.
Sincerely,
Dr. Ahmed Saber Moussa

 

 

Acknowledgment:

Before addressing the reviewer's valuable comments, we would like to express our sincere gratitude for their thoughtful and constructive feedback. Their insights have greatly contributed to the refinement and strengthening of our manuscript.

Title:  Does Capital Expenditure matter for ESG Disclosure? A UK Perspective

Abstract:

This study investigates the relationship between capital expenditure (capex) and Environmental, Social, and Governance (ESG) disclosure among non-financial firms listed on the UK's FTSE All Share index. We examine the moderating role of governance in this relationship and discuss its implications for theory and practice. Our analysis relies on data from Bloomberg spanning the period from 2012 to 2021.

Reviewer's Comment 1:

Page 2: line 77-79 can be deleted as the hypothesis development is explained separately in the later section;

Author's Response 1:

We have carefully reviewed the manuscript and have already removed lines 77-79 to streamline the paper and avoid redundancy. We appreciate your keen observation.

Reviewer's Comment 2:

Furthermore, page 2: line 87-93 can be removed as well and line 94-98 need to be updated as the contribution of this study;

Author's Response 2:

Your point is well taken. We appreciate your feedback regarding the redundancy in the text. We have already removed lines 87-93, and we have also updated lines 94-98 to more explicitly state the contribution of this study.

Reviewer's Comment 3:

Page 6: corporate governance (CG) elements should be extended, and more clarity is needed why CG is crucial within the UK context;

Author's Response 3:

We value your suggestion and agree that providing a clearer rationale for the importance of corporate governance within the UK context would enhance the paper. We have already expanded upon the discussion of corporate governance elements and its relevance within the UK context to provide a more comprehensive and justified understanding.

Reviewer's Comment 4:

The following articles could be advantageous:

Huang, Q., Li, Y., Lin, M. and McBrayer, G.A., 2022. Natural disasters, risk salience, and corporate ESG disclosure. Journal of Corporate Finance, 72, p.102152.

Karim, A.E., Albitar, K. and Elmarzouky, M., 2021. A novel measure of corporate carbon emission disclosure, the effect of capital expenditures and corporate governance. Journal of Environmental Management, 290, p.112581

Author's Response 4:

Thank you for suggesting these articles. We have reviewed and considered them in the context of our research to ensure that we provide a comprehensive literature review and incorporate relevant findings into our study.

 

We appreciate your valuable feedback, and please note that we have already implemented the changes you suggested in our manuscript. If you have any further comments or recommendations, please feel free to share them with us.

Sincerely,

Dr. Ahmed Saber Moussa

Author Response File: Author Response.docx

Reviewer 3 Report

Dear Authors, 

I received a very interesting article for review and I can honestly say that these are scientific considerations. However, to present the content even more clearly, I suggest:

1) rethink the summary

  and write it again

2) refresh the bibliography (too few of the latest items in the ESG area)

3) add a Discussion in addition to the Conclusions already included in the article.

Good Luck, 

Reviewer

 Minor editing of the English language required!

Author Response

Journal of risk and financial Management

Manuscript ID: jrfm-2620955, Title: "Does Capital Expenditure matter for ESG Disclosure? A UK Perspective".

Response to the editor and reviewers’ comments:
I would like to express my gratitude to the editor and the reviewers for
their constructive and helpful comments, which have enabled me to
improve the quality of the manuscript. I have revised the manuscript
according to their suggestions and provided detailed responses to each
comment below.
Sincerely,
Dr. Ahmed Saber Moussa

 

 

Response to the editor and reviewers’ comments:
I would like to express my gratitude to the editor and the reviewers for
their constructive and helpful comments, which have enabled me to
improve the quality of the manuscript. I have revised the manuscript
according to their suggestions and provided detailed responses to each
comment below.
Sincerely,
Dr. Ahmed Saber Moussa

 

 

Acknowledgment:

Before addressing the reviewer's valuable comments, we would like to express our sincere gratitude for their thoughtful and constructive feedback. Their insights have greatly contributed to the refinement and strengthening of our manuscript.

 

Reviewer's Comments:

1) Rethink the summary and write it again.

 

Author's Response:

We have revised the summary to present the content more clearly. Please find the updated summary in the manuscript.

Reviewer's Comments:

2) Refresh the bibliography (too few of the latest items in the ESG area).

Author's Response:

We have reviewed the bibliography and included additional up-to-date references to enhance the relevance and comprehensiveness of our literature review.

Reviewer's Comments:

3) Add a Discussion in addition to the Conclusions already included in the article.

 

Author's Response:

 

Thank you for your recommendation to include a Discussion section in addition to the Conclusions section in our article. We have incorporated a dedicated Discussion section to provide further insights and context for our findings, contributing to the overall clarity and completeness of our research.

 

Please feel free to use this format to respond to the reviewer's comments. If you require any further assistance or have additional requests, do not hesitate to let me know.

 

Sincerely,

Dr. Ahmed Saber Moussa

Author Response File: Author Response.docx