Corporate Social Responsibility Risk and Firm Performance: A Network Perspective

Round 1

Reviewer 1 Report

The paper addresses important and topical issue, aiming to enhance the relatively modest literature on the role of social networks in moderating the impact of CSR risk on firms’ financial and capital performance.

The methodological framework of the paper does not raise serious doubts. The econometric approach applied by the Authors is clearly outlined and suitable for investigation of the formulated research problem. The data selection and model estimation procedures seem generally appropriate.

Notwithstanding the overall soundness of the research methodology, the Authors might consider the following suggestions:

• the order and numeration of hypotheses in Section 2.2 is somewhat confusing (2b, 3b, 1b, 1c, 3c);
• the direction of the arrow representing hypothesis H2b in Figure 1 seems to be wrong;
• in line 243 the word ‘samples’ should rather be replaced with ‘firm-year observations’;
• the sentence in lines 249-251 is somewhat unclear;
• according to data in Table 2 some of the explanatory variables are significantly correlated – given the above the Authors should provide some additional explanations regarding the potential multicollinearity issues in the estimated models;
• in line 446 the Authors argue that ‘CSR risk can also improve a firm’s capital performance’ – such claim, however, seems to assume a relatively short-sighted perspective of the equity investors who are willing to accept firm’s socially irresponsible behaviour in exchange for a sufficiently high returns. Since the study simultaneously demonstrates that CSR risk deteriorates a given firm’s financial performance its positive impact on capital performance seems hardly sustainable in the long run;
• given the fact that the study is based on the data for a single market, it is advisable to extend the comments on the impact of the specific contextual factors on the obtained results;
• some further proof reading is advisable, with respect to wording, grammar and style, see e.g. ‘lack of CSR incidents’ in line 32; ‘is served’ in line 162; ‘taller’ in line 167; the sentence in lines 239-242; ‘bark’ in line 433.

Author Response

Point 1: The order and numeration of hypotheses in Section 2.2 is somewhat confusing (2b, 3b, 1b, 1c, 3c); the direction of the arrow representing hypothesis H2b in Figure 1 seems to be wrong; in line 243 the word 'samples' should rather be replaced with 'firm-year observations'; the sentence in lines 249-251 is somewhat unclear.

Response 1: We appreciate it very much for this good suggestion. We are very sorry for our negligence in the explanation and figure. Moreover, we have corrected it according to your ideas in Section 2.2 and the corresponding location. We reworked lines 293-299 as follows for the unclear sentences. To maintain the integrity of the firm's network, we include all A-share listed firms when computing the network variables (Chen 2014). For other variables, we processed the initial sample as follows: (1) removed missing values; (2) removed financial listed companies; (3) removed discontinuous companies in the ten years from 2010 to 2019. Then we trimmed the main continuous variables at the 1% level and finally obtained 1593 A-share listed companies for ten consecutive years from 2010 to 2019, with 15930 samples.

References: Chen, Yunsen. 2014. Directors' Social Networks and Firm Efficiency: A Structural Embeddedness Perspective. China Journal of Accounting Studies 2: 53-73.

Point 2: According to data in Table 2 some of the explanatory variables are significantly correlated – given the above. The Authors should provide some additional explanations regarding the potential multicollinearity issues in the estimated models.

Response 2: We appreciate it very much for this good suggestion. There is no severe multicollinearity problem in this study, where the correlation coefficients between all variables are less than 0.6. We performed the variance inflation factor test (VIF) to check the correlation coefficients, and the results (see Table 1) showed that the maximum VIF value was 2.386, which was less than 5. Furthermore, we believed there was no severe multicollinearity problem in this study.

Table 1 VIF values between variables

Point 3: In line 446 the Authors argue that 'CSR risk can also improve a firm's capital performance' – such claim, however, seems to assume a relatively short-sighted perspective of the equity investors who are willing to accept firm's socially irresponsible behaviour in exchange for a sufficiently high returns. Since the study simultaneously demonstrates that CSR risk deteriorates a given firm's financial performance its positive impact on capital performance seems hardly sustainable in the long run.

Response 3: We appreciate it very much on this excellent suggestion, and we have done it according to your ideas. We conducted further analysis on this issue. We conducted a lag period test on CSR risk and firm performance. We find that CSR risk in this period still hurts the first lag period's financial performance and innovation performance but does not significantly positively impact the capital performance of the first lag period. It shows that the positive impact of CSR risk on capital performance is not lasting and just is limited to the current period. In contrast, the negative impact on financial and innovation performance is continuous. Therefore, the impact of CSR risk on firm performance is more harmful than beneficial in the long run.

Point 4: Given the fact that the study is based on the data for a single market, it is advisable to extend the comments on the impact of the specific contextual factors on the obtained results.

Response 4: We appreciate it very much on this excellent suggestion, and we have done it according to your ideas. In the theoretical contribution section, we extended the comments on the impact of the specific contextual factors on the obtained results. Details are as follows. This study focuses on Chinese listed companies, adding developing countries' insights into CSR and CSI practices and the relationship between CSR risk, social network, and firm performance, deepening and expanding the previous literature mainly focused on developed countries. It broadens the research on CSR risk, social networks, and firm performance in emerging markets and developing countries.

Point 5: Some further proof reading is advisable, with respect to wording, grammar and style, see e.g. 'lack of CSR incidents' in line 32; 'is served' in line 162; 'taller' in line 167; the sentence in lines 239-242; 'bark' in line 433.

Response 5: We appreciate it very much on this excellent suggestion. We are very sorry for our negligence of wording, grammar, and style. Moreover, we have proofread and corrected it according to your ideas in the corresponding location.

Reviewer 2 Report

The paper studies the relationship between CSR risk and firm performance from an innovative network perspective in the Chinese context. The paper is really well done. The introduction well specifies the limitations of the literature and the objective of the research; the literature review highlights the various relationships between the variables and then the hypotheses that the authors want to test; the data and methodology are well explained; the results are interesting well discussed. 

The paper, to me, is acceptable as is. Interesting results contribute to the emerging literature on CSR and risk. 

This is my first time accepting a paper without asking for a review. Kudos to the authors. 

best

Author Response

Point 1: The paper studies the relationship between CSR risk and firm performance from an innovative network perspective in the Chinese context. The paper is really well done. The introduction well specifies the limitations of the literature and the objective of the research; the literature review highlights the various relationships between the variables and then the hypotheses that the authors want to test; the data and methodology are well explained; the results are interesting well discussed.

Response 1: Thank you very much for your high evaluation and suggestions of our paper. We completely agree with you and will continue to improve our study in the future.