The Impact of ESG Performance on the Value of Family Firms: The Moderating Role of Financial Constraints and Agency Problems
Round 1
Reviewer 1 Report
Thank you very much for giving me the opportunity to read this interesting manuscript. This study is based on an interesting dataset of family owned firms. The study has tried to answer whether ESG have impact on firm value in family owned firms and how financing constraints and agency cost affect this nexus. Please consider following observations that could help you to improve the current version.
Overall
The paper is well organized. The subject matter of this work is of relevance to the theme of the journal, which would be helpful in the context of analysis of overall literature contribution in the field. The title and abstract accurately reflect the content of the submission.
* Authors mentioned that the dataset set belongs to all the world, Authors should prove a table with the details of the sample, country wise companies.
* Method employed are sound but results need more explanation.
* Authors used the controls for the firm characteristics such as firm size, but they did not include the controls for the other factors, such as corporate governance characteristics and some controls for country level characteristics. Authors should include controls for governance and country level characteristics for unbiased results.
Overall, the manuscript is well-written and adds to the literature. I recommend REVISIONS for publication after the author/s addresses the above queries and suggestions.
Author Response
We are grateful for all the suggestions and comments made to our manuscript. We have dedicated a great deal of time and effort to incorporate the suggestions made. The following are our comments and revisions to the manuscript in response to your feedback. Thanks for the opportunity to improve our work.
Comments and Suggestions for Authors
Thank you very much for giving me the opportunity to read this interesting manuscript. This study is based on an interesting dataset of family-owned firms. The study has tried to answer whether ESG have impact on firm value in family-owned firms and how financing constraints and agency cost affect this nexus. Please consider following observations that could help you to improve the current version.
Response: Thank you for your enthusiasm regarding to our research.
Overall
The paper is well organized. The subject matter of this work is of relevance to the theme of the journal, which would be helpful in the context of analysis of overall literature contribution in the field. The title and abstract accurately reflect the content of the submission.
* Authors mentioned that the dataset set belongs to all the world, Authors should prove a table with the details of the sample, country wise companies.
Response: We specify in the sample description how many countries are included and also the continent of origin. We arrive to the conclusion that our sample of 274 family businesses that are publicly listed is truly global because they originate from every continent. We have not included a table because of space constraint, considering the different comments that we have to answer and the maximum space allowed by the journal.
* Method employed are sound but results need more explanation.
Response: We have expanded the explanations of the main results of the article. Please, see the text blue throughout section 4. Additionally, we have included some additional robustness checks, which are displayed in Table 3b.
* Authors used the controls for the firm characteristics such as firm size, but they did not include the controls for the other factors, such as corporate governance characteristics and some controls for country level characteristics. Authors should include controls for governance and country level characteristics for unbiased results.
Response: Now that we have added law origin as a necessary country attribute, we have also introduced a governance proxy for contestability. Results hold and none of the new variables to control for country characteristics and also for governance are statistically significant. Unfortunately, at this moment we do not have more information on other characteristics to be included. Please, see the results in Table 3b.
Overall, the manuscript is well-written and adds to the literature. I recommend REVISIONS for publication after the author/s addresses the above queries and suggestions.
Response: Thank you for your general recommendations.
Reviewer 2 Report
This is an interesting article. In terms of methodology I have no reservations but I think it should be improved in two areas:
1- It is argued that "family firms are well known for their heterogeneous behaviour" so agency costs and financial constraints are included to study the moderating effect of this variables on the relationship between ESG performance and firm value. This requires further justification and rationale as to how this resolves the "heterogeneous behaviour" issue. There is almost no discussion on this whereas it is the key aspect of the paper.
2- There are no policy implications or practical lessons. Conclusions are provided but there is no discussion or analysis of the findings.
Author Response
We are grateful for all the suggestions and comments made to our manuscript. We have dedicated a great deal of time and effort to incorporate the suggestions made. The following are our comments and revisions to the manuscript in response to your feedback. Thanks for the opportunity to improve our work.
Comments and Suggestions for Authors
This is an interesting article. In terms of methodology I have no reservations but I think it should be improved in two areas:
- It is argued that "family firms are well known for their heterogeneous behaviour" so agency costs and financial constraints are included to study the moderating effect of this variables on the relationship between ESG performance and firm value. This requires further justification and rationale as to how this resolves the "heterogeneous behaviour" issue. There is almost no discussion on this whereas it is the key aspect of the paper.
Response: The literature in family firms does not give a particular attention to these two characteristics of the firms (financial constraints and free cash flow). We argue that both of them belong to SEW and family management. Free cash flow is related to SEW (restricted versus extended) and as we show firms differ in this characteristic having a significant impact on firm value. On the other hand, financial constraints may have an impact on ESG investment decisions and then this will impact the firm value. A more detailed analysis can be found on page 21.
- There are no policy implications or practical lessons. Conclusions are provided but there is no discussion or analysis of the findings.
Response: In the conclusions section we have included policy implications and we have provided more discussion regarding the findings.
Reviewer 3 Report
the following changes should be incorporated:
a) abstract is too short and it does not contain (one line ) background, aim, methods, results, discussion and conclusion
b) the introduction has failed to present the research gaps and main questions of study.
c) the literature review has hypotheses but there is no theoretical background and no research/conceptual framework, so how hypotheses have been formulated? moreover, in literature review there is no materials on the context of study.
d) In Materials and Methods there is no information about research design. similarly there is no information about total population, from which sample has been drawn. moreover, what about data collection plan?
e) there is no discussion on results, also there is no information about implications, contributions of study, and what about limitations of study? what are future recommendations?
f) the conclusion is too lengthy, make in more comprehensive
Author Response
We are grateful for all the suggestions and comments made to our manuscript. We have dedicated a great deal of time and effort to incorporate the suggestions made. The following are our comments and revisions to the manuscript in response to your feedback. Thanks for the opportunity to improve our work.
Comments and Suggestions for Authors
the following changes should be incorporated:
- abstract is too short and it does not contain (one line) background, aim, methods, results, discussion and conclusion
Response: We have improved the abstract subject to the maximum words allowed by the journal.
- the introduction has failed to present the research gaps and main questions of study.
Response: Thank you for noting this point. We have identified the research gap and main questions in the first paragraph of section 1.
- the literature review has hypotheses but there is no theoretical background and no research/conceptual framework, so how hypotheses have been formulated? moreover, in literature review there is no materials on the context of study.
Response: We have included theoretical backgrounds to support each one of the hypotheses.
- In Materials and Methods there is no information about research design similarly, there is no information about total population, from which sample has been drawn. Moreover, what about data collection plan?
Response: We employ secondary sources of data. Due to the characteristics of our sample it is very costly to obtain hand collecting data. The sources of our data are mainly two. First, Ernest and Young (EY) and second, University of St. Gallen family Business index[1], we employ an international sample of the 500 largest family-owned firms worldwide over the period 2015-2021. Secondly, This study uses annual data from Thompson Reuters Eikon, a reputed dataset, at the firm level. Specifically, we obtain financial and market information from this database. We also collect the environment, social and governance disclosure scores (ESG) for each firm from Thompson Reuters Eikon. Finally, after applying some filters to the initial group (eliminate private family firms and financial firms) we have 274 firms belonging to 38 countries, representing the five continents, and 968 firm-year observations. In Sectior 3 we explain the sample selection.
- there is no discussion on results, also there is no information about implications, contributions of study, and what about limitations of study? what are future recommendations?
Response: The main contributions of the article to the existing literature are explained in the introduction section. As summary, we claim to have at least three contributions (particular sample of large family firms, two potential sources of heterogeneity and recommendations to investors and companies regarding the role of ESG and performance of family business). In the final section (Conclusions) we include: political implications, limitations of the study, practical implications and we suggest future avenues of research.
- the conclusion is too lengthy, make in more comprehensive
Response: We have made a more comprehensive section on conclusions.
[1] https://familybusinessindex.com/
Round 2
Reviewer 1 Report
Thank you for incorporating suggested changes.
Reviewer 3 Report
nil
