The Impact of Corporate Governance on Sustainability Disclosures: A Comparison from the Perspective of Financial and Non-Financial Firms

Reviewer(s)' Comments to Author:

Response to Reviewer

Reviewer 1: Please consider highlighting specific gaps in prior research that this study addresses.

 The specific gap for the research is stated in introduction section.

Reviewer 1: Reducing redundancy in the discussion of concepts like CSR and ESG would enhance the clarity and flow of the manuscript.

Thank you for your suggestion. Since the ESG concept is based on CSR, the introduction provides information on both concepts. In literature the concepts of CSR and ESG are used interchangeably. Only the term ESG is used in the rest of the study for the sake of linguistic unity. Your suggestion have led to the simplification of explanations related to CSR and ESG concepts.

Reviewer 1: Pkease provide more detailed justification for the selection of specific corporate governance variables and the exclusion of others.

This study was conducted using the Saudi Arabia example given below. The dependent and dependent variables used in this article published in "Corporate Social Responsibility and Environmental Management" were used and we analyzed in the Turkish example.

The second justification is to see the impact of only corporate governance variables on sustainability disclosures and to understand the R2 explanatory power. It is also based on the theoretical framework of Ellili (2022).

We added

“The reason for using only corporate governance variables in the study is to assess their impact on sustainability disclosures. The variables used in the study are presented in Table 1, based on the work of Ellili (2022).”

Reviewer 1: Discussing potential limitations of the chosen methodology and how they were addressed would add depth to the analysis.

We acknowledge the potential limitations inherent in the PCSE methodology utilized in this study. Although PCSE is a robust approach for addressing common challenges in panel data analysis, such as heteroskedasticity and autocorrelation, it is not devoid of limitations. To mitigate these, meticulous attention was given to model specification, ensuring that the methodological choices were rigorously aligned with the data structure. This approach was undertaken to enhance the reliability of the results. The robustness of the findings was thoroughly evaluated and interpreted in accordance with the characteristics of the panel data employed in the analysis.

We added

“The study utilizes the Panel-Corrected Standard Errors (PCSE) method, which is particularly adept at addressing prevalent challenges in panel data analysis, including heteroskedasticity and autocorrelation. By mitigating these issues, the PCSE method enhances the robustness and reliability of the model estimates. Its applicability to large and complex panel data sets, coupled with its flexibility across various data structures, underscores its suitability as a preferred approach in rigorous panel data analysis.”

Reviewer 1: The discussion of the results could be expanded to explore potential reasons behind the differences observed between financial and non-financial firms.

We added

“The differences in the impact of ownership structure and board composition on ESG disclosures between financial and non-financial firms can be attributed to various factors related to the nature of these industries and their distinct regulatory and operational environments. Financial firms are subject to stricter regulatory frameworks, particularly concerning risk management, transparency, and governance. This regulatory pressure can lead to more conservative and risk-averse behavior, especially regarding ESG disclosures. For instance, the increase in ESG scores due to foreign ownership in financial firms can be explained by compliance with international standards. Additionally, the core activities of financial firms are closely tied to public trust and risk management. Therefore, these firms may be more sensitive to changes in ownership and governance structures that could impact their reputation and risk profile. Furthermore, financial firms have a broader range of stakeholders, including regulators, investors, and customers, who may demand more comprehensive ESG disclosures. These differences highlight the importance of considering industry-specific factors when analyzing the impact of ownership and governance structures on ESG disclosures.”

Reviewer 1: Incorporating a more detailed analysis of the implications of these findings for practitioners and policymakers would strengthen the practical relevance of the study.

We added

“Policymakers, particularly in developing countries where corporate governance mechanisms are weak, might consider creating incentives for foreign investors to take more active roles. By attracting foreign investors, policymakers can improve firms' overall ESG performance and enhance the country's reputation in global markets. Additionally, the positive impact of board diversity on ESG disclosures suggests that policymakers should develop policies that encourage greater diversity in corporate boards. This could include mandating minimum requirements for gender diversity or promoting the inclusion of board members with international experience. Furthermore, the findings indicate that different ownership structures have varying effects on ESG disclosures across sectors. Policymakers should consider these differences when designing regulations and guidelines for corporate governance.”

Reviewer 1: Some sections are overly descriptive. It would be beneficial to focus more on critically analyzing the literature and identifying the specific contributions of this study within that context.

The contributions of the study are mentioned in the Introduction section.

Reviewer 1: Ensuring that the most recent and relevant studies are cited will enhance the manuscript's credibility.

The most recent studies in the literature on the impact of different characteristics of board characteristics and ownership structure on ESG are included in the Literature Review section. Additions and changes are shaded in yellow. Studies shaded in green have also been added in this revision.

Reviewer 1: It could be more impactful by offering more concrete recommendations based on the study's results.

We improved the "Conclusion and Recommendations" section.

Reviewer 1: Please consider providing specific guidance for corporate managers, investors, and policymakers on how to leverage corporate governance practices to improve ESG disclosures.

We improved the "Conclusion and Recommendations" section.

Reviewer 1: Some tables contain a lot of information, which might be overwhelming for readers.

These tables have been made more understandable in terms of information.

Reviewer 1: Simplifying or breaking down complex tables into more digestible parts could improve readability.

A total of 39 different models were run in the study. The tables were simplified as much as possible. Unfortunately, the simplified form is the current tables.

Reviewer 1: Please ensure that all figures are clearly labeled and that their relevance to the text is explicitly mentioned. 

We have corrected the numbering errors in the tables.

Reviewer 1: There are minor grammatical errors and awkward phrasings that should be corrected. 

We appreciate the reviewer’s observation. A comprehensive proofreading of the manuscript has been undertaken, and all identified grammatical errors and awkward phrasings have been corrected to enhance clarity and linguistic precision throughout the text.

Reviewer 1: A thorough proofreading session focusing on sentence structure and clarity would enhance the overall quality of the manuscript.

In response to the reviewer’s suggestion, the manuscript has undergone meticulous revision, with particular attention to sentence structure and overall clarity. Sentences have been restructured where necessary, ensuring that the manuscript is both clear and concise, thereby improving its readability and coherence.

Reviewer 1: Future research directions could be more elaborated by suggesting specific corporate governance variables or alternative methodologies that could be explored in subsequent studies.

We added

“Additionally, future research could be enriched by exploring additional corporate governance variables that may further influence ESG disclosures, such as board independence, executive compensation, or audit committee characteristics. Furthermore, employing alternative methodologies like dynamic panel models or instrumental variable approaches could offer deeper insights into the causal relationships between corporate governance and sustainability disclosures. These research directions would not only extend the current findings but also contribute to a more comprehensive understanding of the factors affecting ESG performance across different sectors.”

Reviewer 1: Encouraging cross-country comparisons or longitudinal studies could also be valuable.

We added.

“Additionally, future research could be enriched by exploring additional corporate governance variables that may further influence ESG disclosures, such as board independence, executive compensation, or audit committee characteristics. Furthermore, employing alternative methodologies like dynamic panel models or instrumental variable approaches could offer deeper insights into the causal relationships between corporate governance and sustainability disclosures. These research directions would not only extend the current findings but also contribute to a more comprehensive understanding of the factors affecting ESG performance across different sectors. Finally, future research could include cross-country comparisons or longitudinal studies to better understand the relationship between corporate governance and ESG disclosures.”

Reviewer 1: There are occasional grammatical errors and awkward sentence structures. These issues can sometimes make the text less clear or harder to follow. A thorough proofreading is recommended to correct these minor issues.

Thank you for this valuable feedback. A detailed proofreading of the manuscript has been conducted, with careful attention to correcting grammatical errors and refining sentence structures. The revisions made have significantly improved the clarity and flow of the text, ensuring it is now easier to follow.

Reviewer 1: Some sentences are overly complex or lengthy, which can obscure the main point. Simplifying these sentences and using more direct language would improve clarity and readability.

We have carefully revised sections where sentences were identified as overly complex or lengthy. These sentences have been simplified, and more direct language has been employed to ensure that the key points are conveyed clearly and effectively, enhancing the overall readability of the manuscript.

Reviewer 1: In a few places, word choice could be more precise. For example, some technical terms could be more accurately or consistently used to ensure the reader fully understands the intended meaning.

We acknowledge the reviewer’s comment regarding word choice. A thorough review has been conducted to ensure that technical terms are used with precision and consistency. This revision has strengthened the accuracy of the language and improved the reader’s understanding of key concepts.

Reviewer 1: There are minor punctuation errors throughout the manuscript, such as misplaced commas or missing periods. Paying close attention to punctuation during the revision process will help in enhancing the overall readability.

We have carefully reviewed the manuscript to correct all punctuation errors, including misplaced commas and missing periods. These adjustments contribute to the manuscript's overall readability and adherence to grammatical norms.

Reviewer 1: Please ensure consistency in terminology and formatting throughout the manuscript. For example, the use of acronyms and their definitions should be consistent to avoid confusion.

Especially in the section on theories, abbreviations are not used to increase comprehensibility.

Reviewer(s)' Comments to Author:

Response to Reviewer

Reviewer 2: The research motivation is not clear, and the contributions are small.

The motivation for the research is more clearly stated in introduction section. The contributions of the study are mentioned in introduction section in detail in introduction section.

Reviewer 2: The literature part includes the hypothesis is not suitable and the literature reviews are not enough, especially not include the recent years research.

The most recent studies in the literature on the impact of different characteristics of board characteristics and ownership structure on ESG are included in the Literature Review section. Additions and changes are shaded in yellow. Studies shaded in green have also been added.

Reviewer(s)' Comments to Author:

Response to Reviewer

Reviewer 3: The variables and the causal relationships in this article have been examined in many studies, so the incremental contribution is trivial. Please provide several serious gaps in past studies.

The variables and causal relationships in this paper have been analyzed in many studies. However, few studies have compared financial and non-financial sectors. This comparison reveals how sector-based regulations and dynamics can have different effects on ESG scores. The research gap is stated in Introduction.

Reviewer 3: My first question is why is the statement "the effects of corporate investor ownership and board size vary between financial and non-financial firms"  so important? Please clarify! 

When regulatory and audit authorities, as well as investors, assess "Board and ownership" in different contexts, they should avoid using ESG disclosures as a comparative factor between financial and non-financial sector firms. However, ESG disclosures can offer valuable insights when comparing firms within the financial sector or within the non-financial sector.

This explanation has been added to the Abstract.

Reviewer 3: My second question is that this paper should be a theoretical research article, but the authors only cited practical articles in the introduction. It has limited development of theory or research literature. In other words, this is a data-driven article, so data from different countries will have different results, which is also a significant factor limiting the contribution of this article.

The contributions of the study are mentioned in the Introduction section. In addition, in the "Theoretical Background" section of our paper, theories on the subject are explained and hypotheses are developed.

Reviewer 3: Although the author cited many studies to propose the importance of issues, there needs to be a solid theory to support the structure of this research. Why are there differences between financial and non-financial companies? So what theories can explain this phenomenon?

 What makes this study different from other studies is the comparison between financial and non-financial firms. In this context this distinction, which constitutes the structure of the study, is based on the fact that there are certain characteristics that distinguish financial and non-financial firms from each other. These characteristics and the theories that explain this phenomeon is stated in the Introduction section.

Reviewer 3: The author uses panel data to conduct the data. The author must carefully handle the panel data. In addition, how do you deal with selection bias?

We added

“The study utilizes the Panel-Corrected Standard Errors (PCSE) method, which is particularly adept at addressing prevalent challenges in panel data analysis, including heteroskedasticity and autocorrelation. By mitigating these issues, the PCSE method enhances the robustness and reliability of the model estimates. Its applicability to large and complex panel data sets, coupled with its flexibility across various data structures, underscores its suitability as a preferred approach in rigorous panel data analysis.”

Reviewer 3: The discussion is not rich enough, and I really cannot see the importance of this article.

We improved the "Conclusion and Recommendations" section

The manuscript was revised to improve sentence structure and flow, eliminate redundancy, and ensure that technical terms are used consistently. All the revisions were highlighted in red.

The advantages and advantages of the Panel-Corrected Standard Errors (PCSE) method are presented in the model.

“The study utilizes the Panel-Corrected Standard Errors (PCSE) method, which effectively addresses common challenges in panel data analysis, such as heteroskedasticity and autocorrelation. PCSE accounts for correlations across entities within a panel, enhancing the accuracy of standard error estimates. It corrects for heteroskedasticity, where error variances differ across entities, and adjusts for autocorrelation, ensuring reliable estimates over time. These features make PCSE particularly valuable for obtaining robust inferences in empirical models with panel data. Its applicability to large and complex panel data sets, combined with its flexibility across various data structures, makes it a preferred method for rigorous panel data analysis.”

The following revisions were made:

· Sentence Length: Overly lengthy sentences were broken down into concise ones.

· Awkward Phrasing: Sentences that feel awkward or unclear were rephrased to improve flow.

· Tense Consistency: The use of tenses is now consistent throughout the manuscript.

· Precision in Expression: Technical terms and expressions were adjusted to ensure that the intended meaning is conveyed more clearly.

All the revisions were highlighted in red.

We have revised the abstract. The abstract reflects the contributions of our study, particularly in differentiating between financial and non-financial firms and the roles of ownership structure and board characteristics.

We have revised the literature to include a discussion of previous studies. The revised section now provides a more detailed discussion of how past studies differs from our research.  

The conclusion section has been enriched and information about future research is provided.

We have thoroughly reviewed the manuscript and made any necessary revisions to improve the clarity and quality of the English language. All the revisions were highlighted in red.