The Value Relevance of ESG Practices in Japan and Malaysia: Moderating Roles of CSR Award, and Former CEO as a Board Chair

Round 1

Reviewer 1 Report

The authors examined the impact of ESG practices and its three pillars on the stock price ten and the moderating role of CSR award and ex-CEO as a chairman on the ESG-value nexus in Japan and Malaysia. They found positive valuation effects of ESG practices in both countries that align with stakeholder theory. However, the authors need to consider the following minor point.

In Table 1, who did use the variables? Cite them.

Author Response

The authors examined the impact of ESG practices and its three pillars on the stock price ten and the moderating role of CSR award and ex-CEO as a chairman on the ESG-value nexus in Japan and Malaysia. They found positive valuation effects of ESG practices in both countries that align with stakeholder theory. However, the authors need to consider the following minor point.
In Table 1, who did use the variables? Cite them.

Thank you for the response on the overall manuscript.
As mentioned in the Sample and data section, all variables are obtained from the Thomson Reuters ASSET4/Refinitiv Eikon database and followed a similar approach to previous studies. We add the paragraph “Note” and provide a list of references.

Reviewer 2 Report

Title: The value relevance of ESG practices in Japan and Malaysia: Moderating roles of CSR award, and former CEO as a board chair

 

Dear authors and editor,

 

This article focuses on the value relevance of ESG scores and its subcomponents. Furthermore, the moderating role of CSR award and ex-CEO as a chairman on the ESG-value relevance nexus in Japan and Malaysia.

 

I can see there are many aspects of the paper that should be improved before it can be accepted. For example:

The authors selected two countries for the comparison. However, what are the motivations behind this selection? 

 

In the introduction section, the Contribution of the study is not clear. Please clarify your research questions, objectives, background motivation, theoretical and empirical motivation and the lines of contributions to the literature. You can do this by sharply articulating your research questions/objectives, identify the potential theoretical, background and theoretical motivation or gaps, and explaining how your study contributes to the literature. You can do this by highlighting the weaknesses of prior studies as well. Currently, your introduction is very dry. Additionally, you need to state clearly the contributions of the paper. For example, "Consequently, the current paper seeks to make the following contributions to the existing literature. First,…, Second,…., Third, …, Fourth,… and so on". The description of the contribution needs to be more forensic, needs to be more focussed

 

In the literature review and hypothesis development section directions of the moderating hypothesis 2 and 3 is not clear. There is very significant literature on ESG, the authors need to update the literature and include recently published papers (2022) and they need to discuss the research gaps and then they need to explain how the current paper fills at least one of these gaps.

 

What is the underlying theory that leads to the development of the hypotheses?  The authors need to enhance their hypotheses development by: (i) drawing on the theory; (ii) empirical literature; (iii) research setting/contextual insights; and (iv) then setting up their hypotheses. They will do this for each hypothesis. Currently, They have not developed your hypotheses in this way. They will need to do so by drawing on both seminal (old) and recently (newly) published studies.

 

There needs to be a more comprehensive and formal discussion methodology used to conduct this study. Authors should include the controls for the other CEO attributes-related variables. Moreover, Two different countries have different legal setups and other governance and accounting mechanisms. I suggest authors to use the country level control variables to make findings comparable.

 

Further, there are no robustness tests to control for endogeneity and omitted variables biasedness, i.e common in such studies. Authors should run some robustness tests and report their findings.

The authors need to link their findings more strongly to the: (i) theory, (ii) empirics, (iii) context; and (iv) highlight their economic, academic/research and policy implications. In the discussion of the results please focus on the novel findings and insights vis-à-vis the existing literature.

 

In the conclusion, the authors need to expand the discussions relating to implications, limitations and avenues for future research. There are two different countries studied, the authors should provide the detailed separate recommendations for each country i.e. Japan and Malaysia

Author Response

Dear authors and editor,

 

This article focuses on the value relevance of ESG scores and its subcomponents. Furthermore, the moderating role of CSR award and ex-CEO as a chairman on the ESG-value relevance nexus in Japan and Malaysia.

I can see there are many aspects of the paper that should be improved before it can be accepted. For example:

The authors selected two countries for the comparison. However, what are the motivations behind this selection?

Thanks for your comment. We have provided additional justification for selecting Japan and Malaysia samples. Please see highlighted pages 1-2.

These two countries have contrasting ESG regulatory frameworks, which make them interesting for closer examination, given that different requirements and regulations may lead to different valuation consequences of ESG practices. While Malaysia is the first among the ASEAN-5 countries to implement mandatory ESG disclosure in 2007 (the Philippines in 2011, Indonesia in 2012, Thailand in 2014, and Singapore in 2016), Japanese firms are not subjected to mandatory ESG disclosure during our sample period (Krueger, Sautner, Tang & Zhong, 2021).

 

In the introduction section, the Contribution of the study is not clear. Please clarify your research questions, objectives, background motivation, theoretical and empirical motivation and the lines of contributions to the literature. You can do this by sharply articulating your research questions/objectives, identify the potential theoretical, background and theoretical motivation or gaps, and explaining how your study contributes to the literature. You can do this by highlighting the weaknesses of prior studies as well. Currently, your introduction is very dry. Additionally, you need to state clearly the contributions of the paper. For example, "Consequently, the current paper seeks to make the following contributions to the existing literature. First, …, Second, …., Third …, Fourth… and so on". The description of the contribution needs to be more forensic, needs to be more focussed

Thanks for your comment. We have rewritten the introduction section by adding seminal literature on the value relevance of ESG information, as well as contemporary literature, and articulate how our study engages with this literature to motivate the research, identify the gap and contribute to the debate on the stakeholder effects of ESG performance. Please see highlighted pages 1 to 3.
The additional references added are as follows:
Brooks, C., & Oikonomou, I. (2018). The Effects of Environmental, Social and Governance Disclosures and Performance on Firm Value: A Review of the Literature in Accounting and Thanks for your comment. We have rewritten the introduction section by adding seminal literature on the value relevance of ESG information, as well as contemporary literature, and articulate how our study engages with this literature to motivate the research, identify the gap and contribute to the debate on the stakeholder effects of ESG performance. Please see highlighted pages 1 to 3.
The additional references added are as follows:
Brooks, C., & Oikonomou, I. (2018). The Effects of Environmental, Social and Governance Disclosures and Performance on Firm Value: A Review of the Literature in Accounting and Finance. The British Accounting Review, 50(1), 1-15.
Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate Social Responsibility and Access to Finance. Strategic Management Journal, 35(1), 1–23.
Christensen, H. B., Hail, L., & Leuz, C. (2021). Mandatory CSR and Sustainability Reporting: Economic Analysis and Literature Review. Review of Accounting Studies, 26(3), 1176-1248.
Edmans, A. (2022). The end of ESG. Financial Management. Available online: https://onlinelibrary.wiley.com/doi/pdfdirect/10.1111/fima.12413
Flammer, C. (2015). Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Dis-continuity Approach. Management Science, 61(11), 2549-2568.
Godfrey, P. C., Merrill, C. B., & Hansen, J. M. (2009). The Relationship Between Corporate Social Responsibility and Shareholder Value: An Empirical Test of the Risk Management Hypothesis. Strategic Management Journal, 30(4), 425-445.
Krueger, P., Sautner, Z., Tang, D. Y., & Zhong, R. (2021). The Effects of Mandatory ESG Disclosure Around the World. European Corporate Governance Institute–Finance Working Paper, (754), 21-44.
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The Impact of Environmental, Social, And Governance Disclosure On Firm Value: The Role of CEO Power. The British Accounting Review, 50(1), 60-75.
Luo, X., & Bhattacharya, C. B. (2006). Corporate Social Responsibility, Customer Satisfaction, and Market Value Journal of Marketing, 70(4), 1-18.
Malik, M. (2015). Value-enhancing capabilities of CSR: A Brief Review of Contemporary Literature. Journal of Business Ethics, 127(2), 419-438.
Ooi, C. A., Hooy, C. W., & Nagata, K. (2021). Corporate Social Responsibility, Firm Value and Corporate Governance Code Revisions: The Asian Evidence. Asian Economic Journal, 35(1), 27-56
Panwar, R., Pandey, V., Suddaby, R., & Vidal, N. G. (2022). Did India’s CSR Mandate Enhance or Diminish Firm Value?. Business & Society, 00076503221085962.
Servaes, H., & Tamayo, A. (2013). The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness. Management Science, 59(5), 1045-1061.
Tsang, A., Frost, T., & Cao, H. (2022). Environmental, Social, and Governance (ESG) Disclosure: A Literature Re-view. The British Accounting Review, 101149.
Tsang, A., Wang, K. T., Wu, Y., & Lee, J. (2022). Nonfinancial Corporate Social Responsibility Reporting and Firm Value: International Evidence on the Role of Financial Analysts. European Accounting Review, 1-36.
We provided additional contributions as follows:
Our study extends the evidence provided by Ooi, Hooy and Nagata (2021), who examine the relationship between CSR and firm value for earlier period prior to 2015 and document the positive relationship to be stronger in middle-income countries such as Malaysia than Japan (a high income country). Using a more recent sample period spanning 2015-2019, our finding that the value relevance of ESG disclosure is greater in Malaysia, as compared to Japan is probably driven by the ESG regulation (mandatory versus voluntary).
We thereby contribute to the literature that identifies firm-specific or country-level factors that play a moderating role in enhancing the positive effect of ESG performance on firm value.  While important prior research on such moderating effects exists, the focus has so far predominantly been on customer awareness (Servaes & Tamayo, 2013), CEO power (Li et al., 2018), and the role of financial analysts (Tsang, Wang, Wu & Lee, 2022). In contrast to these studies, we examine the moderating effects of winning CSR awards and appointing an ex-CEO as the board chair.

 

In the literature review and hypothesis development section directions of the moderating hypothesis 2 and 3 is not clear. There is very significant literature on ESG, the authors need to update the literature and include recently published papers(2022) and they need to discuss the research gaps and then they need to explain how the current paper fills at least one of these gaps.

 

 

Thanks for your valuable comment. Please See the explanations above.

Additionally, we have revised all the hypotheses by giving directions. Please see highlighted pages 4 to 9.

What is the underlying theory that leads to the development of the hypotheses? The authors need to enhance their hypotheses development by: (i) drawing on the theory; (ii) empirical literature;(iii) research setting/contextual insights; and (iv) then setting up their hypotheses. They will do this for each hypothesis. Currently, they have not developed your hypotheses in this way. They will need to do so by drawing on both seminal (old) and recently(newly) published studies.

Thanks for these comments. We have revised this section. Please see highlighted sections of pages  3-5.

 

Further, there are no robustness tests to control for endogeneity and omitted variables biasedness, i.e common in such studies. Authors should run some robustness tests and report their findings.

 

Thank you for the comment given. In the section of Analysis and Result, we inserted the comparison of estimations that related to the endogeneity and omitted variables as suggested by the reviewers. Please see highlighted sections 3.1, 4.2.1, 4.2.4 (pages 5, 8, 9,11,12,15)

We conducted an analysis of the endogeneity using fixed-effect regression and random-effect GLS regression. We also compared the result using the Hausman test and random effect GLS regression which is a more appropriate method for our study.

Furthermore, we have added the descriptions of the potential source of endogeneity and run an endogeneity test using random effect GLS regression.

 

The authors need to link their findings more strongly to the: (i)theory, (ii) empirics, (iii) context; and (iv) highlight their economic, academic/research and policy implications. In the discussion of the results please focus on the novel findings and insights vis-à-vis the existing literature.

Thanks for this comment. We have modified these sections and added more in the context, theory, and results for each hypothesis. Please kindly see the highlighted sections of pages 15-17.

In the conclusion, the authors need to expand the discussions relating to implications, limitations, and avenues for future research. There are two different countries studied, the authors should provide detailed separate recommendations for each country i.e. Japan and Malaysia

 

 

Thanks for your valuable comment. We have modified this section.

As Malaysia and Japan are considered in the Indo-Pacific region, we made our comments and suggestions based on the region, and each of the countries separately. Please kindly see the highlighted sections of pages 16-17.

 

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

Thank you for incorporating suggested changes