Sustainable Innovation and Firm Performance Driven by FinTech Policies: Moderating Effect of Capital Adequacy Ratio
Round 1
Reviewer 1 Report
1. The data period is too less for a single-country study. Authors should update the data.
2. Title of the paper is generic. It is fine if the study is based in US or multi-country for very large data. However, for short data and a single country (a small country like Taiwan), the authors need to be very specific in the title.
3. Abstract can be written more crisp manner. The authors could shorten the findings part.
4. Why Taiwan? Authors have to provide enough motivation for the choice. Do they expect work in Taiwan would exhibit different results than the work of major developed countries? If so why? If not, then the authors could question the need for this study.
5. Introduction should clearly state the contribution of the work.
6. Citations are not uniform. In some places, just the number of papers and authors' names in others. Further, some places have both. Authors should stick to one.
7. Authors state that “However, there is a time gap between R&D investment and performance. Therefore, this study adopts one-year deferred R&D expenditures to measure the performance and risk effects of financial companies' investment in R&D activities in the following year.”- Is there any backup reasoning (you could mention old studies) to consider this gap as one year?
8. How do authors take care of endogeneity in the model? There is no discussion on the same.
9. Authors do not mention any diagnostics checks of the data. The appropriate model cannot be chosen based on just earlier studies. If the data is different, then relevant models could be different. The authors need to perform all the diagnostics checks before running the panel model. Is it a fixed effect model or pooled? If the fixed effect model, then what variations are considered?
10. Authors need to do some robustness checks to exhibit the validity of the results.
11. Compare the results with other similar studies.
12. How would this work be useful for a global audience? Are there any specific implications for a global audience? Do results from Taiwan, gives any learning for the other markets?
Moderate editing of the English language is needed. Copy-editing is a must.
Author Response
Comment 1:
The data period is too less for a single-country study. Authors should update the data.
Response 1:
Thank you very much for this constructive comment. We added description in the section 3.2 research samples and data sources of Method section with red font sections, as well as find descriptions below (on page 13):
However, this study examined the role played by government policy in the financial industry in promoting sustainable innovation, business performance, and risk management. The initial year of Fintech was 2015 in Taiwan, the financial industry was encouraged to invest in financial innovation until to the challenges of COVID epidemic in 2020. Therefore, the data period from 2015 to 2019 is valuable research data and fits the standards of at least of a period of five years in the samples for a country [28]
Comment 2:
Title of the paper is generic. It is fine if the study is based in US or multi-country for very large data. However, for short data and a single country (a small country like Taiwan), the authors need to be very specific in the title.
Response 2:
Thanks for this important suggestion. As suggested, we agree to add “Taiwan” in the title of this manuscript.
Comment 3:
Abstract can be written more crisp manner. The authors could shorten the findings part.
Response 3:
Thanks for this important suggestion. We have revised the abstract to be more specific to the findings. Please see page 1.
Comment 4:
Why Taiwan? Authors have to provide enough motivation for the choice. Do they expect work in Taiwan would exhibit different results than the work of major developed countries? If so why? If not, then the authors could question the need for this study.
Response 4:
We agree that it is important to explain the clarification of why study Taiwan, this paper added description in the paragraph 4 of section 3.2- research samples and data sources of Research Method section with red font sections (see page 14), as well as find descriptions below:
Furthermore, for the reason of examines financial innovation in Taiwan, as one of the top 25 largest economies in the world, Taiwan possesses robust exports and foreign exchange reserves. This economic strength forms the foundation for the country's significance in the global financial industry, as it facilitates international trade and investments. In turn, this attracts foreign banks and financial institutions, fostering a dynamic and competitive financial landscape. Furthermore, Taiwan’s Financial Supervisory Commission (FSC) has demonstrated a commitment to fostering financial innovation through policies and initiatives. The FinTech Development Strategy White Paper and the Financial Regulatory Sandbox are excellent examples. These efforts create a conducive environment for the growth of the financial industry and encourage banks and financial institutions to adopt innovative solutions and services.
Comment 5:
Introduction should clearly state the contribution of the work.
Response 5:
Thanks very much for your detailed and useful suggestion. According to your suggestion, we agree to clearly state the contribution of the work. Please refer to the final paragraph in the Introduction section (see page 4).
Comment 6:
Citations are not uniform. In some places, just the number of papers and authors' names in others. Further, some places have both. Authors should stick to one.
Response 6:
Thanks very much for your useful suggestion. We have had double check with citations to up to the norm. All the revisions are marked in red for your easier tracking.
Comment 7:
Authors state that "However, there is a time gap between R&D investment and performance. Therefore, this study adopts one-year deferred R&D expenditures to measure the performance and risk effects of financial companies' investment in R&D activities in the following year."- Is there any backup reasoning (you could mention old studies) to consider this gap as one year?
Response 7:
Thank you very much for this insightful comment. In the revised paper, we have provided backup reasoning with old study to consider this one year time gap in the third paragraph of section 3.2- research samples and data sources of Research Method section with red font sections, as well as find descriptions below:
However, there is a time lag between R&D investment and successful outcomes, as well as between the application of research findings [26]. Therefore, the benefits of research and development investment will be realized after a period of time, exhibiting a deferred effect. Consequently, this study uses the research and development expenditure with a one-year delay to measure the effect of financial institutions' investment in R&D activities on performance and risk in the following year. In order to test the hypothesis, the R&D expenditure deferred for one year was used as a measurement.
Comment 8:
How do authors take care of endogeneity in the model? There is no discussion on the same.
Response 8:
Thank you very much for this insightful comment. Please refer to the final paragraph in the 5 Discussion and Conclusion (see page 24).
Comment 9:
Authors do not mention any diagnostics checks of the data. The appropriate model cannot be chosen based on just earlier studies. If the data is different, then relevant models could be different. The authors need to perform all the diagnostics checks before running the panel model. Is it a fixed effect model or pooled? If the fixed effect model, then what variations are considered?
Response 9:
Thank you very much for this insightful comment. We have revised the description of the second paragraph in the 3.3 research methods as follows.
Besides, the paper further tested whether results were robust across different ways of analyzing the data. First, the paper examined if the results changed when we analyzed only the text from before the method section. The results were similar regardless of whether we analyzed the entire article or just the text before the method section.
Comment 10:
Authors need to do some robustness checks to exhibit the validity of the results.
Response 10:
Thank you very much for this insightful comment. We have revised the description of the second paragraph in the 3.3 research methods as follows.
To analyze the data and examine the moderating effects in the model, this study employs the PROCESS macro for SPSS, which is well-suited for conducting multiple regression analysis, moderation analysis, and hypothesis testing. The analysis leverages Model 1 in the PROCESS framework, with 5,000 bootstrap resamples to obtain robust estimates of the effects. By using the PROCESS macro, this study can effectively analyze the direct and interaction effects of R&D expenditure, financial innovation news releases, financial patent applications, and capital adequacy ratio on business performance and risk, while also examining the conditional effects of these variables at different levels of the moderating variable. This approach provides a comprehensive understanding of the relationships among the variables in the study and helps to test the proposed hypotheses with greater accuracy and interpretability [27].
Besides, the paper further tested whether results were robust across different ways of analyzing the data. First, the paper examined if the results changed when we analyzed only the text from before the method section. The results were similar regardless of whether we analyzed the entire article or just the text before the method section.
Comment 11:
Compare the results with other similar studies.
Response 11:
We agree to compare the results with other similar studies. Please refer to the first and the second paragraph in the 5 Discussion and Conclusion (see page 22).
Comment 12:
How would this work be useful for a global audience? Are there any specific implications for a global audience? Do results from Taiwan, gives any learning for the other markets?
Response 12:
Thank you very much for this insightful comment. In the revised paper, we have provided more information about contributions for global audience in the third paragraph and the 8th paragraph in the Introduction section as the italic types words below:
This study contributes to the global financial literature by examining the interplay between capital adequacy ratio, R&D activities, business performance and risk. The findings of this research offer valuable insights for policymakers, financial institutions, and researchers across the globe, emphasizing the importance of fostering innovation while maintaining financial sustainability in an increasingly interconnected and dynamic financial industry.
This study contributed to the understanding of how government policies for Fintech investment and business performance in financial sector can be effectively managed. Firms’ innovation involvement includes R&D expenditure and parent grant. The capital adequacy ratio of the financial service firms is critical to moderate innovation involvement and corporate sustainability in terms of firm profitability and risk management. The study confirmed the results of prior research that emphasized the importance of institutional regime and certain organizational characteristics such as innovation involvement are critical to corporate sustainability.
Comment 13:
Moderate editing of the English language is needed. Copy-editing is a must.
Response 13:
We agree to revise English writing and complete proof reading. All the revisions were marked in red for your easier tracking.
Reviewer 2 Report
Title: Why does the title focus on sustainable innovation while ignoring it in the text?
Abstract: The authors need to present the findings in the abstract
Hypotheses: Using innovation instead of R&D. Delete "To develop financial innovation"
Commenting on the results of Tables 6 to 10 was not sufficient. The authors merely commented that the results correspond to the hypothesis or not, without giving the indications and implications of these results and without comparing them with the literature.
Author Response
Comment 1:
Title: Why does the title focus on sustainable innovation while ignoring it in the text?
Response 1:
We have added more description of sustainable innovation in Chap. 2 and Chap. 5. Please refer to the whole manuscript. All the revisions were marked in red for your easier tracking.
Comment 2:
Abstract: The authors need to present the findings in the abstract
Response 2:
Thanks for this important suggestion. We have revised the abstract to be more specific to the findings. Please see page 1.
Comment 3:
Hypotheses: Using innovation instead of R&D. Delete "To develop financial innovation"
Response 3:
We agree to revise the description of the hypotheses. Specifically, in order to differentiate R&D and sustainable innovation, we revised the hypotheses as:
To develop sustainable innovation, the main argument of each hypothesis states……..
Comment 4:
Commenting on the results of Tables 6 to 10 was not sufficient. The authors merely commented that the results correspond to the hypothesis or not, without giving the indications and implications of these results and without comparing them with the literature.
Response 4:
Thank you very much for this insightful comment. In the revised paper, we have provided more information about commenting on the results of Tables 6 to 10 in the 4.2-Empirical Results section and 4.3- Analysis of Moderate Effect of Capital Adequacy Ratio section with red font sections, as well as find descriptions below:
The regression results of the tracking data of financial holding companies investing in Fintech innovations, and their business performance were shown in Table 6. In terms of operating performance, the R&D expenditure invested in the past year was reflected in the performance of the next year, and the results of R&D expenditure on each indicator of operating performance were positively correlated and have a statistically significant effect. In addition, the return on shareholders' equity and earnings per share were significant, which means that financial companies' R&D activities were beneficial to shareholder returns. This outcome supports Hypothesis 1, suggesting that a financial firm's R&D expenditure positively influences its business performance, leading to improvements in shareholder returns and profitability. However, the return on assets (ROA) is less significant (p= 0.77), which may indicate that the relationship between R&D expenditure and profitability is not as strong in this aspect. This result is worth further investigation, as it deviates from the findings of some previous studies [14].
Although this result was significantly positively correlated, it contradicted Hypothesis 2. This observation aligns with previous literature, which has documented the negative consequences of financial innovation in the risk management [9, 11, 17, 18].
In examining the innovation behavior of financial companies, Table 7 shows the regression results of publishing news related to financial development and application. The investment in R&D expenditure was positively correlated and significant between the return on assets and the return on shareholders' equity. This finding aligns with the studies by [20] and [21], which demonstrated the importance of social and traditional media in assessing and predicting company performance. Consistent with Hypothesis 3, financial companies that intended to engage in financial development and application exhibited higher profitability when they released financial innovation news.
This result supports the findings of [22], which highlighted the positive impact of Fintech patents on the profitability of the financial services industry. In line with Hypothesis 4, these results indicate that financial companies should actively engage in financial technology R&D and apply for patents to improve their business performance. However, the relationship between R&D expenditure and risk remains inconclusive and requires further investigation.
Table 9 and Table 10 examine the moderating effect of the capital adequacy ratio on the relationship between R&D expenditure and business performance and risk. The interaction effect of R&D expenditure and the capital adequacy ratio does not have a significant moderating effect on ROA. However, the results reveal significant moderating effects of the interaction between R&D expenditure and the capital adequacy ratio on return on equity (β=0.0001, p<0.05, CI=0.001, 0.0101), net interest rate (β=-0.0241, p<0.001, CI=-0.0344,-0.0139), and earnings per share (β=0.0075, p<0.001, CI=0.0063, 0.0088). This finding suggests that the capital adequacy ratio partially moderates the relationship between R&D expenditure and operating performance, which is not entirely in line with Hypothesis 5.
Table 10 demonstrates the significant moderating effect of the capital adequacy ratio on the relationship between R&D expenditure and risk (β=-0.0017, p<0.001, CI=-0.0027,-0.0008), which supports Hypothesis 6. This result is consistent with the findings of [23], which showed that a higher capital adequacy ratio is associated with better operating performance, and [24], which highlighted the reduced risk for banks with higher equity capital.
In summary, the empirical results show that the capital adequacy ratio has a partial moderating effect on the relationship between R&D expenditure and business performance, as well as a significant moderating effect on the relationship between R&D expenditure and business risk. These findings contribute to the literature on the importance of capital adequacy in shaping the financial sector's growth and success while managing risks associated with innovation.
Reviewer 3 Report
despite the good research of the authors, the article has very significant shortcomings:
first, it seems that the study does not address the issue of sustainability at all;
second, a rather weak and narrow review of the literature, for example, social responsibility (https://doi.org/10.1016/j.jclepro.2023.136317) or joint innovation and investment activity (https://doi.org/0.3390/en16052363) could be considered as a factor in sustainable development:
third. very significant problems in the methodology: the authors presented the final table and it is not clear where it came from.
These are the most significant shortcomings of the article.
Author Response
Comment 1:
despite the good research of the authors, the article has very significant shortcomings:
Response 1:
Thank you very much for your recognition of our research. Also, thanks very much for not only pointing out the shortcomings of our manuscript but also providing us with clear ideas and directions for revision after your patient review! We hope that the revised manuscript has addressed all your concerns well.
Comment 2:
first, it seems that the study does not address the issue of sustainability at all;
Response 2:
We have added more description of sustainable innovation in Chap. 2 and Chap. 5. Please refer to the whole manuscript. All the revisions were marked in red.
Comment 3:
second, a rather weak and narrow review of the literature, for example, social responsibility
(https://doi.org/10.1016/j.jclepro.2023.136317) or joint innovation and investment activity
(https://doi.org/0.3390/en16052363) could be considered as a factor in sustainable development
Response 3:
Thank you very much for this insightful comment. In the revised paper, we have discussed more with social responsibility with sustainable innovation in 2.2 Sustainable innovation and financial technology on business models Literature Review section with red font sections, as well as find descriptions below:
According to past literature, the literature suggest that in order for firms to profit from corporate social responsibility (CSR) activities, they need to increase CSR awareness, inhibit consumer skepticism about CSR claims, and demonstrate high CSR performance. Therefore, businesses that engage in genuine CSR activities may be more likely to succeed in their sustainability efforts and gain the trust of consumers [29]. Additionally, the literature may encourage businesses to be more transparent about their sustainability practices and avoid engaging in CSR-washing tactics for developing sustainable innovation [29].
Comment 4:
third. very significant problems in the methodology: the authors presented the final table and it is not clear where it came from.
Response 4:
Thank you very much for this insightful comment. In the revised paper, we have added information that we used of methodology in 3.3 research method section with red font sections, as well as find descriptions below:
To analyze the data and examine the moderating effects in the model, this study employs the PROCESS macro for SPSS, which is well-suited for conducting multiple regression analysis, moderation analysis, and hypothesis testing. The analysis leverages Model 1 in the PROCESS framework, with 5,000 bootstrap resamples to obtain robust estimates of the effects. By using the PROCESS macro, this study can effectively analyze the direct and interaction effects of R&D expenditure, financial innovation news releases, financial patent applications, and capital adequacy ratio on business performance and risk, while also examining the conditional effects of these variables at different levels of the moderating variable. This approach provides a comprehensive understanding of the relationships among the variables in the study and helps to test the proposed hypotheses with greater accuracy and interpretability [27].
Comment 5:
These are the most significant shortcomings of the article.
Response 5:
Thank you very much for your recognition of our research. Also, thanks very much for not only pointing out the shortcomings of our manuscript but also providing us with clear ideas and directions for revision after your patient review! We hope that the revised manuscript has addressed all your concerns well.
Round 2
Reviewer 1 Report
Authors have tried to address all the points raised.
Author Response
Thanks for the appreciation from Reviewer#1.
Reviewer 2 Report
Your Hypotheses still need to be improved. You use R&D in all hypotheses. My suggestion is to use sustainable innovation (independent var) instead of R&D as the latter is a measurement of sustainable innovation.
Author Response
Thank you very much for this constructive comment. Your suggestion to replace R&D with 'sustainable innovation' in the hypotheses is well-noted. We acknowledge that R&D can indeed be seen as a measure of sustainable innovation. We have revised our hypotheses accordingly, shifting the focus from R&D expenditure to sustainable innovation. Please refer to pages 9, 10, and 11.
Reviewer 3 Report
The authors did a great job on the article, removed almost all the comments. The only thing left is to refine the analysis of the literature. For example, an important aspect is social responsibility, which is not considered in depth enough, my recommendation would be to add the most recent research (https://doi.org/10.1016/j.jclepro.2023.136317), as in the area of risk (https://doi.org/10.35940/ijrte.C5601.098319). In general, there is not enough fresh literature in the study, I advise you to add to the existing opinion for 2021-2023, what is also to expand the list of references at the moment it is not enough for this kind of journals.
on the whole, the article has changed to recognizability and now represents a valuable study where the goals are clearly explained; conclusions are based on the results obtained; the study itself is presented logically and clear.
Author Response
Thanks very much for your useful suggestion. In response, we have incorporated additional sources from 2021-2023 to our reference list. In particular, we have studied and cited the two papers you recommended and two papers for reinforce our statement in the revised manuscript. We agree that these additions enrich our analysis and help us stay current with recent developments in the field. This changes had been added in 2.2 Sustainable innovation and financial technology on business models (see the last paragraph on page 7), as well as the descriptions shown below:
This is a crucial moment to delve into sustainability and ESG topics, given the current outbreak of war in Ukraine and Russia. To address the problem of insufficient energy and resources, enterprises must not only source resources in formidable situations but also maintain their long-term development goals [12]. This can be achieved by adopting or developing more efficient and technologically-based methods [13]. Therefore, enterprises should carefully strike a balance by measuring different approaches in detail. A recent study suggests that a strong risk management culture can enhance the efficiency of the operating system [14]. Meanwhile, improving communication systems within companies, especially in project information tasks, is vital. This can be achieved by refining motivational technologies, using game theory tools to stimulate employee activities, particularly within energy company communication departments when addressing ESG and sustainability problems [15].
