The Demerger Impact upon Sustainable Development of Economic Entities: Evidence from Romania

Round 1

Reviewer 1 Report

The paper introduces the analytical intent, provides a brief literature review that engages with recent quantitative studies and gives a detailed rationale for the methods, data sources and techniques that are to be used.

On the level of methodology the analysis and results are presented in an interpretable manner, the tables and graphs are simplified to ensure ease of interpretation and the limitations of the approach adopted are included both early in the paper and in the conclusion.

The findings are significant and point to the combined effects as being a useful strategy for assessing policy impacts.  

 

 

Author Response

Response to Reviewer 1 Comments

Comments on the reviewers’ report for the paper The Demerger Impact upon Sustainable Development of Economic Entities: Evidence from Romania

Our comments refer to the suggestions and recommendations the referees made in order to improve the quality of the research paper, and not to the positive remarks they made. We have to mention that most requirements were fulfilled in this new version of the paper.

Dear Reviewer,

First of all, we would like to express our gratitude for the work you dedicated for investigating our research, identifying the points for improvement and suggesting ways for achieving that. We are fully aware that your suggestions and recommendations are very important for improving our research and the way it is presented in this article.

Comment:

Thank you very much for the time taken to evaluate our paper, for your kind comments and support.

 

Best regards,

The authors

Reviewer 2 Report

The paper evaluated the demerger’s impact on the sustainable development of economic entities. Structural analysis and statistical analysis of profitability ratios before and after the demerger were conducted. The paper was well organized and written. I would recommend adding more discussion upon the manager of what they can learn from this study and how they can implement it in the economic entity.

 

Line 52-55, this sentence is too long, I can’t get what do you mean. Rephrase it.

Line 347. For table6, don’t put this huge table here, nobody wants to see it. Please be more summarized.

Author Response

Response to Reviewer 2 Comments

Comments on the reviewers’ report for the paper

The Demerger Impact upon Sustainable Development of Economic Entities: Evidence from Romania

Our comments refer to the suggestions and recommendations the referees made in order to improve the quality of the research paper, and not to the positive remarks they made. We have to mention that most requirements were fulfilled in this new version of the paper.

 

Dear Reviewer,

First of all, we would like to express our gratitude for the work you dedicated to investigating our research, identifying the points for improvement, and suggesting ways to achieve that. We are fully aware that your suggestions and recommendations are essential for improving our research and the way it is presented in this article.

Thank you, and we hope we have answered all your suggestions and recommendations and improved our research.

1. The paper evaluated the demerger’s impact on the sustainable development of economic entities. Structural analysis and statistical analysis of profitability ratios before and after the demerger were conducted. The paper was well organized and written.

I would recommend adding more discussion upon the manager of what they can learn from this study and how they can implement it in the economic entity.

Comment: Thank you for this suggestion. We have added the paragraph below.

Pages 13- 14, rows 445-457.

We consider that both managers and investors can use the results obtained from this research to assess the growth and development potential of the economic entities resulted from the demerger. Our study can help managers identify the restructuring method for the company they administrate. This study revealed that ROA and ROE levels do not register an immediate increase after the demerger; however, this process allows companies and managers to continue their activity in the medium and long run, for at least four years (as it resulted from available data analysis). The demerger allows increased independence and a focus upon the underlying activities, ensuring increase of efficiency and a sustainable development of these companies. This aspect can be revealed by the graphs put together for each separate panel (for both ROA and ROE measures). The experience acquired by demerger companies, reflected by this research, can represent a good practices model for other companies confronted with financial difficulties after the Covid-19 pandemic.

2. Line 52-55, this sentence is too long. I can’t get what do you mean. Rephrase it.

Comment:

We have reformulated the phrase you mentioned from rows 52-55 as follows:

Page 2, rows 54-56.

The detailed analysis of demerger projects and the study of demerger impact upon sampled entities' financial performances may represent an approach for the demerger analysis.

3. Line 347. For table6, don’t put this huge table here, nobody wants to see it. Please be more summarized.

Comment:

Page 11, rows 349-350.

Thank you for your recommendation. We simplified table 6; it contains the summary of data processing at the company level within each panel.

 

Best regards,

The authors

Reviewer 3 Report

The authors of The Demerger Impact on Sustainable Development of Economic Entities: Evidence from Romania, present a relevant topic, namely the impact of sustainable development of economic entities in terms of economic efficiency and financial performance in the context of the COVID crisis, especially as this crisis is global, and the paper can be a valid and reference tool.

Concepts, bibliographic sources and citations are appropriately mentioned in the paper. For example, the authors mention and justify through bibliographic sources that “the consequences of the decrease on the company's performance and financial situation have been investigated in various recent studies [14-17]. In most cases, decreases tend to have a positive influence on the company. Johnson et al. [14] take into account decreases in order to create value by improving investment incentives and economic performance”.

The research methodology is appropriate, the authors use specific data collection tools, based on a sample of companies, respectively “statistical analysis of differences between ex-ante and ex-post decrease periods”, as well as “ROA level differences testing in periods ex-ante and ex-post leakage ”and other classical theories that support the results of the authors’ research.

The research results are presented by the authors of the research, respectively support the presentation of the analysis of "ROA and ROE variables that showed a decreasing trend before 2020, the year of decline, thus indicating that some form of reorganization of the sampled entities was necessary." However, we suggest to the authors of the research to present in a separate paragraph the personal scientific contributions to the literature.

The conclusions show that "the results show 16 there are no significant differences between ex-ante and ex-post financial performance". Moreover, we suggest to the authors of the research to highlight as we mentioned in the chapter the results and the personal scientific contributions. At the same time, we suggest the presentation of future research by the research authors, as well as the limitations of the study.

We congratulate the research team, and after reviewing the paper, we propose for acceptance the paper.

Author Response

Response to Reviewer 3 Comments

Comments on the reviewers' report for the paper

The Demerger Impact upon Sustainable Development of Economic Entities: Evidence from Romania

 

       Our comments refer to the suggestions and recommendations the referees made in order to improve the quality of the research paper, and not to the positive remarks they made. We have to mention that most requirements were fulfilled in this new version of the paper.

 

Dear Reviewer,

First of all, we would like to express our gratitude for the work you dedicated to investigating our research, identifying the points for improvement, and suggesting ways for achieving that. We are fully aware that your suggestions and recommendations are essential for improving our research and the way it is presented in this article.

Thank you, and we hope we have answered all your suggestions and recommendations and improved our research.

The authors of The Demerger Impact on Sustainable Development of Economic Entities: Evidence from Romania, present a relevant topic, namely the impact of sustainable development of economic entities in terms of economic efficiency and financial performance in the context of the COVID crisis, especially as this crisis is global, and the paper can be a valid and reference tool.

Concepts, bibliographic sources and citations are appropriately mentioned in the paper. For example, the authors mention and justify through bibliographic sources that "the consequences of the decrease on the company's performance and financial situation have been investigated in various recent studies [14-17]. In most cases, decreases tend to have a positive influence on the company. Johnson et al. [14] take into account decreases in order to create value by improving investment incentives and economic performance".

The research methodology is appropriate, the authors use specific data collection tools, based on a sample of companies, respectively "statistical analysis of differences between ex-ante and ex-post decrease periods", as well as "ROA level differences testing in periods ex-ante and ex-post leakage" and other classical theories that support the results of the authors' research.

The research results are presented by the authors of the research, respectively support the presentation of the analysis of "ROA and ROE variables that showed a decreasing trend before 2020, the year of decline, thus indicating that some form of reorganization of the sampled entities was necessary."

However, we suggest to the authors of the research to present in a separate paragraph the personal scientific contributions to the literature.

Comment:

Personal scientific contributions to the literature are presented in the conclusions section.  

Page 14, rows 458-477. 

The paper brings value-added to reference literature to complete the research area in economic entities' restructuring direction. This study represents a useful analysis tool for characterizing the demerger phenomenon in any economy. The present study is the first one in Romanian approaching demerger from a financial perspective, also looking to the demerger effects upon the companies' sustainable development. The statistical processing from this research offers a complex analysis of the impact demerger has upon Romanian companies' financial performances and economic efficiency.

The research contributes to the existing literature in several ways.

First of all, we assessed the impact demerger had upon the sampled companies (72 Romanian companies), using ROA and ROE, during fifteen years.

Secondly, we applied some tests to check the statistical significance of the differences between the ex-ante and ex-post demerger performances and provide robust results.

Thirdly we looked to find whether demerger companies have endured in the market for at least 4 or 5 years after the demerger (they did not file liquidation procedures) and if they registered positive values of ROA and ROE.

Fourthly, we assessed and analyzed in detail a great number of demerger projects (268 projects) published in the 2012-2021 period. The analysis of demerger projects is meant to identify the characteristics of this restructuring phenomenon.

The conclusions show that "the results show there are no significant differences between ex-ante and ex-post financial performance". Moreover, we suggest to the authors of the research to highlight as we mentioned in the chapter the results and the personal scientific contributions. At the same time, we suggest the presentation of future research by the research authors, as well as the limitations of the study.

Comment:

Personal contributions are revealed in those four statements above (page 14, rows 467-477).

The limits of the study

Page 14, rows 478-487.   

The research was limited by the extent of the information offered by the demerger projects, as some projects provided only partial information. Another limitation of the study was the small number of sampled companies (8 companies) from the panel with economic entities divided in 2012.

The heterogeneity of activity domains and moreover the specificities of companies may be a serious limit in interpreting the average values of ROA and ROE at the panel level. However, we handled with checking the significance of differences between the sub-periods ROA and ROE averages for each company, and then we formulated conclusion at the panel data level.

Further directions of the research

Pages 14, rows 488-500.

A further research direction is related to approach the demerger phenomenon for separate economic branches to find whether there are sectorial differences in economic performances.

Another future direction could be identifying some tendencies of merger-demerger actions, appropriate for different development stages of economies. Some comparisons of structural entities' reorganization may describe national economies' dynamics and even establish some reorganization actions for different economies' profiles.

Future research could use interviews within the ranks of divided companies' managers to learn their opinions regarding the effects of demerger upon the efficiency of the activity and the advantages and disadvantages identified by them following the demerger process.

 

Best regards,

The authors

Reviewer 4 Report

The reviews of this study are as follows.

 

1. In Introduction, additional explanation about the research background and research purpose is needed.

 

2. The difference between the previous study and this study and the implications of this study need to be further explained.

 

3. Detailed explanation is needed in Results and Discussion.

 

4. In order to expand this research, it is necessary to present additional research directions.

 

5. Please check and correct typographical errors throughout the paper.

 

This study is an overall creative and suggestive paper.

Author Response

Response to Reviewer 4 Comments

Comments on the reviewers' report for the paper

The Demerger Impact upon Sustainable Development of Economic Entities: Evidence from Romania

Our comments refer to the suggestions and recommendations the referees made in order to improve the quality of the research paper, and not to the positive remarks they made. We have to mention that most requirements were fulfilled in this new version of the paper.

 

Dear Reviewer,

First of all, we would like to express our gratitude for the work you dedicated for investigating our research, identifying the points for improvement and suggesting ways for achieving that. We are fully aware that your suggestions and recommendations are very important for improving our research and the way it is presented in this article.

Thank you and we hope we have answered all your suggestions and recommendations and improved our research.

 

1. In Introduction, additional explanation about the research background and research purpose is needed.

 Comment:

The research purpose

Pages 1, rows 40-48.

The main objective of this paper is to evaluate the impact of demerger upon the sustainable development of economic entities in terms of economic efficiency and financial performance. A structural analysis for 268 demerger projects from the April 2012-April 2021 period and a statistical analysis of profitability ratios before and after the demerger were performed to reach this objective.

The profitability analysis before and after the demerger was necessary to properly highlight the effects generated by the demerger. The purpose of this paper is to realize a statistical analysis of the ex-ante and ex-post demerger performances and find whether the demerger had a positive impact upon sampled companies' efficiency and financial sustainability.

1. The difference between the previous study and this study and the implications of this study need to be further explained.

Comment:

Page 14, rows 439-444. 

Our study differs from previous ones in this segment by the statistical analysis performed in four stages, using four panels, pertaining to the years when demergers took place.

Our study encompasses a longer period of time, of 15 years, to allow an ex-ante and an ex-post demerger performance analysis, as well as a relatively significant number of divided companies (72 companies). Moreover, the study performed a detailed analysis of 268 demerger projects.

1. Detailed explanation is needed in Results and Discussion.

Comment: We have added the paragraph below, at the end of Results section.

Page 13, rows 398-409.

The fact that ROA and ROE levels did not change significantly after the demerger can reveal some interesting aspects. Given the technical construction of ROA and ROE ratios, if their levels remain the same in the ex-post demerger period compared to the ex-ante period could signal that the demerger process was carefully planned and implemented.

Since total assets (from the denominator of ROA ratio) decrease following the demerger action and yet ROA remain virtually the same, it means the divided companies maintained approximately the same efficiency as previously. The resulting companies got portfolio of assets with relatively the same profitability as cedent company. The same reasoning is probably valid for ROE levels. In the coming periods, both ROA and ROE could increase if their managers implement investment strategies that best suit the specific features of their clients and markets.

Page 11, rows 363-366.

The conclusions of this research reflect the working hypotheses of the statistical tests initially established. The previous results lead to accepting the null hypothesis, H0, for both indicators. There are no significant differences between the ex-ante and ex-post demerger levels of ROA and ROE.

In order to expand this research, it is necessary to present additional research directions.

Comment:

Further directions of the research

Page 14, rows 488-500.

A further research direction is related to approach the demerger phenomenon for separate economic branches to find whether there are sectorial differences in economic performances.

Another future direction could be identifying some tendencies of merger-demerger actions, appropriate for different development stages of economies. Some comparisons of structural entities' reorganization may describe national economies' dynamics and even establish some reorganization actions for different economies' profiles.

Future research could use interviews within the ranks of divided companies' managers to learn their opinions regarding the effects of demerger upon the efficiency of the activity and the advantages and disadvantages identified by them following the demerger process.

1. Please check and correct typographical errors throughout the paper.

Comment:

Thanks for the recommendation. We checked and corrected the typographical errors.

 

Best regards,

The authors