Operating Leverage, Equity Incentive, and Enterprise Research and Development Investment

Round 1

Reviewer 1 Report

There is a need to enhance the discussion and the literature review needs to cite recent studies of academic journal papers from 2018, 2019, 2021, and 2022.

Although the quality of the paper’s current version is satisfactory, it will be better to add content to it, such as solidifying the literature review, adding more content in the Conclusion, giving more information on the analytical process, and including acknowledgments.

Finally, there is a need to make sure that all references provided in the reference list are cited within the text. 

The paper "Impact of Operating Leverage and Equity Incentives on Innovation Investment: Evidence from Chinese Listed Companies" investigates the impact of operating leverage and equity incentives on innovation investment in the context of China's macro policy of structural "de-leveraging". The authors used a longitudinal panel dataset of Chinese A-share listed companies from 2010 to 2020 to empirically test the impact and mechanism of operating leverage on enterprise innovation investment.

 

The paper is well-written and organized, and the authors provide a clear rationale for the research question and objectives. The study's methodology is also sound, with the authors using a longitudinal panel dataset and conducting statistical analyses to test their hypotheses. One of the strengths of the paper is its focus on the Chinese context, which is an important and understudied area in innovation research. The authors also provide practical implications for firms, policymakers, and investors, which adds value to the study. However, the paper could benefit from further discussion of the theoretical underpinnings of their hypotheses and the implications of their findings for innovation theory more broadly.

 

Overall, the paper makes a valuable contribution to the literature on innovation investment and provides useful insights for firms and policymakers in the context of China's macro policy of structural "de-leveraging".

 

The topic "Operating Leverage, Equity Incentive, and Enterprise Research and Development Investment Sustainability" appears to be relevant and potentially original in the field of finance and business. The relationship between operating leverage, equity incentives, and research and development (R&D) investment sustainability is an interesting area of study. 

 

Gap

The paper notes that there is little research on the impact of operating leverage on innovation and academia has not yet formed a unified view. 

 

Some specific improvements that the authors should consider regarding the methodology:

By addressing the following improvements, the authors can enhance the transparency and robustness of their methodology, thereby increasing the credibility of their research findings.

 

1) Data Source: While the authors have mentioned using data from two databases, they haven't provided information on the reliability, accuracy, and representativeness of these databases. It would be helpful to provide some explanation about the databases' quality and how they were chosen for the study.

 

2) Sampling Approach: The authors have stated that they eliminated samples from the financial industry, samples with missing data, and some specific samples, but they haven't explained how they made these choices. The authors should provide a clear rationale for why they chose these exclusions and how they may have impacted the final sample.

 

3) Outliers: The authors have mentioned eliminating outliers outside the 1% and 99% quantiles of relevant continuous variables. However, they haven't explained how they identified outliers or the impact of outliers on their analysis. Providing more detail on the approach to outliers would be helpful.

 

4) Variables: The authors have explained their choice of dependent, independent, and control variables. However, they haven't discussed the reasons for choosing these variables or how they might impact the study's outcomes. The authors should provide a clear explanation of why they chose these variables and how they are expected to relate to the study's research question.

 

5) Methodology: The authors have stated that they controlled industry and year fixed effects, but they haven't explained how they did it. It would be helpful to provide more detail on the method of controlling for these effects.

 

6) Statistical Software: The authors have mentioned using Excel and Stata16 for data processing and statistical analysis, respectively. However, they haven't provided information on the versions of Excel and Stata used. It would be helpful to specify the software versions used to ensure replicability.

 

 

Based on the evidence and arguments presented, the conclusions seem to be consistent with the main question posed. The study aimed to investigate the impact of operating leverage on enterprise innovation investment decisions, which has been largely ignored in previous studies that focused more on financial leverage. Overall, the conclusions are consistent with the evidence and arguments presented and address the main question posed.

Author Response

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Author Response File: Author Response.docx

Reviewer 2 Report

Operating Leverage, Equity Incentive, and Enterprise Research and Development Investment Sustainability

The main questions addressed by this research are related to the impact of operating leverage on innovation investment of enterprises and the impact of equity incentives on this link. For this purpose, the research uses a longitudinal panel dataset of Chinese A-share listed companies from 2010 to 2020 comprising as a dependent variable R&D investment; as an independent variable operating leverage; a dummy variable for equity incentives and a number of control variables.

The main contribution of the paper is the finding that a higher operating leverage significantly contributes to an increase in enterprise innovation investment in general, but the positive correlation trend is decreasing with the increase in operating leverage. In addition, equity incentives play a role in this relationship. The authors perform various robustness checks while the large sample also allows them to point to some heterogeneities in the relationships.

The topic of the paper is worth studying and the findings could provide a good contribution to the literature. In addition, identifying the factors of enterprise innovation investment is of great importance for policymakers in order to design better policies to promote investments.  The references used are adequate given the purpose of the paper, but can be expanded.

The econometric analysis seems to be well executed. The empirical analysis is strengthened by the use of a large sample from a large economy.

However, I would have a question about the formula and definition of operating leverage which seems to be different from that of other papers. The authors should provide a reason for that, and also provide arguments for which this formula reflects the same thing from an economic point of view. This is highly important for the interpretation of the results.

The introduction of the paper should be developed further. The relevance of the goals of the paper should be emphasized. For instance, some data about operation leverage, Research and Development investments, China macro deleveraging policy, etc could be provided. In this way, the research could be better placed in context. In addition, the concept, formula and relevance of operating leverage should be presented.

The conclusions should be accompanied by their implications for enterprises and policymakers.

Finally, the use of the term sustainability from the title should be explained. The authors appear to study the impact of operating leverage and other control variables on Enterprise Research and Development Investment. What is the link with sustainability? Also, the word sustainability does not appear throughout the paper.

Author Response

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Author Response File: Author Response.docx

Reviewer 3 Report

 

 

It is necessary to add how the potential influence of financial leverage was considered (or removed), which also significantly affects innovative investments (perhaps more than operating leverage). The consideration (or removal) of the influence of financial leverage on the research result should already be mentioned in chapter 2 (Theory and hypotheses). In the next chapter, when testing the regression results of the control variables, a significant correlation with investment in business innovation was confirmed (lines 258-261). Therefore, purifying the effect of operating leverage alone on innovative investment may be difficult.

In chapter 3.2.4, the reasons for choosing control variables should be added and explained.

1. What is the main question addressed by the research? The main questions addressed in this research are related to the impact of operating leverage on firms' innovative investments and the potential impact of capital incentives on this impact. The data sources are sufficiently robust, regardless of whether the enterprises included in the research are public or private (verified as part of hypothesis testing). The dependent variable (investment in research and development), the independent variable (operating leverage) and the dummy variable (equity incentives) are appropriately chosen. 2. Do you consider the topic original or relevant in the field? Does it address a specific gap in the field? Confirmation and expression of the degree of influence of operating leverage on the support of investments in research and development and innovation is an indisputable contribution of the manuscript. The impact of innovation and competitiveness on the sustainability of the business and the product in the market could be better described. The authors sufficiently documented the research gap based on the literature search and the focus of the published scientific publications. 3. What does it add to the subject area compared with other published material? The main contribution of the paper is the confirmation that higher operating leverage significantly contributes to increased investment in corporate innovation. The positive correlation trend decreases with the increase in operating leverage, which confirms the expectation when a certain degree of operating leverage optimum is reached. The topic of the paper and its findings complement the current insight into investment decision-making and are of benefit to both the theoretical and practical areas. 4. What specific improvements should the authors consider regarding the methodology? What further controls should be considered? The calculation (formula) of the operating leverage is adapted to the available external information from companies, so it is not completely in line with the usual definition of the operating leverage, the authors should justify whether a distortion may arise when using this calculation procedure. It is necessary to add how the potential influence of financial leverage was considered (or removed), which also significantly affects innovative investments (perhaps more than operating leverage). The consideration (or removal) of the influence of financial leverage on the research result should already be mentioned in chapter 2 (Theory and hypotheses). In the next chapter, when testing the regression results of the control variables, a significant correlation with investment in business innovation was confirmed (lines 258-261). Therefore, purifying the effect of operating leverage alone on innovative investment may be difficult. The reasons for choosing control variables should be added and better explained. 5. Are the conclusions consistent with the evidence and arguments presented and do they address the main question posed? The conclusions are consistent with the results of the tested hypotheses and the evidence derived from them and correspond to the main research question. The presented conclusions are clearly formulated and understandable. 6. Are the references appropriate? The references used are appropriate given the purpose of the post. Their number is sufficient, excessive self-citations were not identified. The references used can be supplemented based on the required changes in the methodological part. 7. Please include any additional comments on the tables and figures. The statistics presented in Tables 2-13 support and adequately document the published evidence and conclusions. They enable follow-up and comparative analyzes in subsequent research.

 

Author Response

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Author Response File: Author Response.docx