Sustainable Growth Rate and ROE Analysis: An Applied Study on Saudi Banks Using the PRAT Model

Round 1

Reviewer 1 Report

Although this paper conveys an interesting topic, I suggest that this paper needs to improve intensively to have an avenue to reach publication. The following suggestions can be incorporated to improve this work:

1. The paper needs improved motivation.
2. The novelty and contribution of the presented work need further justification.
3. It is suggested to present the structure of the article at the end of the introduction.
4. The authors reviewed the previous literature; however, it will be good for the authors to create a paragraph at the end of the literature section to highlight the overall findings, gaps, and ways to fill this present study's gaps.
5. Authors should provide the steps of methodology in sequence.
6. Is there a problem of multicollinearity between some of the right-hand side regressors in the various empirical models? What correction can be made to control such a problem?
7. Why are the unit root test and cointegration test results not reported?
8. Should the authors consider the endogeneity problems?
9. Is there any alternative econometric technique to compare with the current econometric technique? The authors should justify why the adopted econometric techniques are better.
10. The empirical results should be linked with the proposed research hypotheses.
11. Conclusions need to list all the limitations and elaborate more on the results and policy implications.
12. It is suggested to avoid long paragraphs. It's confusing to the reader. The paragraph should be concise with clarity.

Author Response

1. The paper needs improved motivation.

Reply: Like what?

 

 

1. The novelty and contribution of the presented work need further justification.

Reply: The justification for the study was clarified through the importance of the study contained in the research.

 

1. It is suggested to present the structure of the article at the end of the introduction.

Reply: Added

 

 

 

1. The authors reviewed the previous literature; however, it will be good for the authors to create a paragraph at the end of the literature section to highlight the overall findings, gaps, and ways to fill this present study's gaps.

Reply: Added

 

 

1. Authors should provide the steps of methodology in sequence.

Reply: Is there any suggestion other than what is mentioned in the search?

 

 

1. Is there a problem of multicollinearity between some of the right-hand side regressors in the various empirical models? What correction can be made to control such a problem?

Reply: A column has been added showing the results of the multicollinearity between the study variables in the pooled model, in the PRAT model and the main Higgins model. The results showed that there was no multicollinearity between the study variables

 

 

1. Why are the unit root test and cointegration test results not reported?

Reply: The study methodology does not depend on finding the unit root and cointegration

 

 

1. Should the authors consider the endogeneity problems?

Reply: Is it possible to explain more and explain the mechanism of this work and is this important and is considered one of the weaknesses in the research that does not look at that point?

 

 

1. Is there any alternative econometric technique to compare with the current econometric technique? The authors should justify why the adopted econometric techniques are better.

Reply: The regression model was adopted because the nature and objectives of the study fit this method of measurement

 

 

1. The empirical results should be linked with the proposed research hypotheses.

Reply: The results were linked to the hypotheses proposed by the research, which are contained in the following sentences:

- Based on these results, it is possible to reject the null hypothesis for all variables in the three models (PRM, FEM & REM); thus, there is a statistically significant effect of PM, RR, AT, and financial leverage (T) on sustainable growth.

- Based on the analysis' results of basic Higgins model, it is possible to reject the null hypothesis for all variables in the three models (PRM, FEM & REM). Accordingly, there is a statistically significant effect of ROE and RR on sustainable growth.

 

 

1. Conclusions need to list all the limitations and elaborate more on the results and policy implications.

Reply: There is no limitations.

 

 

1. It is suggested to avoid long paragraphs. It's confusing to the reader. The paragraph should be concise with clarity.

Reply: Clarify which paragraphs this proposal applies to

Reviewer 2 Report

1. It is necessary to confirm that the manuscript’s main title is “Sustainable Growth Rate and ROE analysis”, while the subtitle is “An applied study on Saudi banks by using PRAT Model”.

2. Abbreviations used in manuscripts (e.g., PRAT) should be defined when they first appear. Note that they need to be defined separately in the Abstract and main text sections. The reference appearing in the Abstract should also be correctly cited.

3. The relationships and differences between variables G *, PRAT, and SGR must be explained. If the variables have the same implication, the authors only specify them once.

4. Hypothesis 1 and Hypothesis 2 in the model are directly related to the statistical significance between variables, which does not reflect the implications of statistical inference. It is recommended to state the hypothesis as to whether a variable impacts another variable or not.

5. What does PM, RR, AT, TAT, FL, RR mean in the regression equation? Given the way variables are constructed, there can be significant multicollinearity between variables. More importantly, because of the underlying theories involved in the model and how the variables are constructed, there are self-evident endogeneity issues in the model.

6. The Hausman test for judging the random effect model or fixed effect model is common knowledge, so it is unnecessary to explain too much in the text. In addition, there may be some misunderstandings in the current discussion of the meaning of the Hausman test.

7. Due to my preference and recognition of empirical studies, the authors’ story is not attractive as an economic manuscript. The mainline of the manuscript is to propose a hypothesis of statistical correlation between particular variables and then use econometric methods to demonstrate whether these statistical correlations are significant quantitatively. It is recommended that the narrative focus on the causal inference of effects between variables, as is common in discussions of endogeneity issues or structural equations.

Author Response

1. It is necessary to confirm that the manuscript’s main title is “Sustainable Growth Rate and ROE analysis”, while the subtitle is “An applied study on Saudi banks by using PRAT Model”.

Reply: Modified

2. Abbreviations used in manuscripts (e.g., PRAT) should be defined when they first appear. Note that they need to be defined separately in the Abstract and main text sections. The reference appearing in the Abstract should also be correctly cited.

Reply: Modified

3. The relationships and differences between variables G *, PRAT, and SGR must be explained. If the variables have the same implication, the authors only specify them once.

Reply: Modified

g* (SGR) = ROE × Retention rate

4. Hypothesis 1 and Hypothesis 2 in the model are directly related to the statistical significance between variables, which does not reflect the implications of statistical inference. It is recommended to state the hypothesis as to whether a variable impacts another variable or not.

Reply: Please explain more and give an example

5. What does PM, RR, AT, TAT, FL, RR mean in the regression equation? Given the way variables are constructed, there can be significant multicollinearity between variables. More importantly, because of the underlying theories involved in the model and how the variables are constructed, there are self-evident endogeneity issues in the model.

Reply:  The symbols in the equation have been modified

Reply: A column has been added showing the results of the multicollinearity between the study variables in the pooled model, in the PRAT model and the main Higgins model. The results showed that there was no multicollinearity between the study variables

6. The Hausman test for judging the random effect model or fixed effect model is common knowledge, so it is unnecessary to explain too much in the text. In addition, there may be some misunderstandings in the current discussion of the meaning of the Hausman test.

Reply: What are misunderstandings in the current discussion of the meaning of the Hausman test.

7. Due to my preference and recognition of empirical studies, the authors’ story is not attractive as an economic manuscript. The mainline of the manuscript is to propose a hypothesis of statistical correlation between particular variables and then use econometric methods to demonstrate whether these statistical correlations are significant quantitatively. It is recommended that the narrative focus on the causal inference of effects between variables, as is common in discussions of endogeneity issues or structural equations.

Reply: We respect the preferences of the arbitrator, but this study is an applied study to apply a model that is one of the important models in finance that helps financial managers in companies to make financial decisions, and this study covers the gap of the lack of a study applied to the Kingdom of Saudi Arabia that helps stakeholders.

Reviewer 3 Report

• While this research is about sustainable growth rate and ROE analysis, only PRM, FEM and REM has been used. Why was SEM (Structural Equation Modelling) been missed? SEM analysis will be a crucial testing
• Authors have focused more about PRAT analysis, it is fine as for sustainable growth analysis it is appropriate, but at same authors should remember that PRAT is widely used when the optimal rate of growth a company can achieve without borrowing more debt. Maybe need more justification for this
• 11 banks in Saudi Arabia were selected as sample in what basis? if Random Sampling, then it has be specified distinctly 
• Citations are fine

Author Response

• While this research is about sustainable growth rate and ROE analysis, only PRM, FEM and REM has been used. Why was SEM (Structural Equation Modelling) been missed? SEM analysis will be a crucial testing

Reply: Thanks for your feedback

The methodology used by researchers is considered one of the well-known methodologies, and if the structural equation modeling methodology is not followed, is this considered a defect in the research methodology and considered a scientific error?

 

• Authors have focused more about PRAT analysis, it is fine as for sustainable growth analysis it is appropriate, but at same authors should remember that PRAT is widely used when the optimal rate of growth a company can achieve without borrowing more debt. Maybe need more justification for this

Reply: The justification for the study was clarified through the importance of the study contained in the research.

 

• 11 banks in Saudi Arabia were selected as sample in what basis? if Random Sampling, then it has be specified distinctly 

Reply: All banks were selected subject to availability of data

• Citations are fine

Reviewer 4 Report

The manuscript studied the relationship between SGR and PRAT through PRM, FEM and REM regression models. There are several concerns about this manuscript.

1. The representation of variables in the paper is inconsistent. For example, the explanatory variables in Tables 1 ~ 5 are P, R, A and T, while PM, TAT, FL and RR appear in equation (1), and X1,X2,X3,and X4 appears in equation (3) ~ (5). Please explain these variables.

2. The explained variable SGR is equal to profit margin (P) × assets turnover (A) × financial leverage (T) × retention rate (R). The above clearly provides the function between SGR and the parts of PRAT. Why study the relationship between SGR and PRAT by regression models? Please explain it.

Author Response

The manuscript studied the relationship between SGR and PRAT through PRM, FEM and REM regression models. There are several concerns about this manuscript.

1. The representation of variables in the paper is inconsistent. For example, the explanatory variables in Tables 1 ~ 5 are P, R, A and T, while PM, TAT, FL and RR appear in equation (1), and X1,X2,X3,and X4 appears in equation (3) ~ (5). Please explain these variables.

Reply: The symbols in equation (1) have been modified. The x1,x2… it’s the just the a symbols in original equation but they have been modified to search symbols.

2. The explained variable SGR is equal to profit margin (P) × assets turnover (A) × financial leverage (T) × retention rate (R). The above clearly provides the function between SGR and the parts of PRAT. Why study the relationship between SGR and PRAT by regression models? Please explain it.

Reply: Because we want to study the effect of those variables that Huggins put in his model (independent variables) as being the variables affecting the dependent variable, which is sustainable growth. And regression analysis helps organizations understand the data that is used to gain insight into that organization. Regression analysis is performed by data professionals who make strategic decisions.

Reviewer 5 Report

The paper investigated an updated subject. An improvement of the Higgins well known model is provided, and next applied to study the situation of one of the largest economies in GCC countries, such as KSA. A comparison to some existing models has been provided by the authors showing thus the efficiency and superiority of their study.

There are just few mistakes in English. For example Dupont is written sometimes DuPont. Authors should apply one type.

Author Response

The paper investigated an updated subject. An improvement of the Higgins well known model is provided, and next applied to study the situation of one of the largest economies in GCC countries, such as KSA. A comparison to some existing models has been provided by the authors showing thus the efficiency and superiority of their study.

There are just few mistakes in English. For example Dupont is written sometimes DuPont. Authors should apply one type.

Thank you for the moral encouragement to the researchers, and this is a testimony we cherish.

Reply: DuPont has been modified in this way

Author Response File: Author Response.docx

Reviewer 6 Report

I find the findings are interesting. I have the following comments for the authors to improve their paper:

• The authors should discuss the results of other studies/models in this area, compare their results with the findings of other related studies/models, and point out the superiority of their model over other models/students
• They should include a theory section to discuss the theory to support their model.
• The data section is too brief, the authors should discuss more on the data and the variables being used.
• The authors should discuss the variables in detail, not to use a table to present the variables
• The methodology section is too brief and too simple, the authors should discuss more on the methodology used in their paper. They should cite some papers for all the equations they are using and justify the use of equations is correct. It is good if the authors could use more advanced models in their study.
• The authors should discuss their findings and draw more inferences from their findings.
• The authors should improve the presentation greatly.
• The conclusion section is too brief. They should discuss clearly the motives of their study, tell readers why their study is important and useful to academics and practitioners, state clearly their contributions to the literature in the conclusion section. They should point out the limitations of their approach and suggest directions for further study.
• There are many typos and structure problems. The authors should polish their paper greatly.

 

Author Response

• The authors should discuss the results of other studies/models in this area, compare their results with the findings of other related studies/models, and point out the superiority of their model over other models/students

Reply: Edited in the conclusions section

 

• They should include a theory section to discuss the theory to support their model.

Reply: It is not necessary to put a theoretical section to explain the idea of the research separately. The idea of the research was clarified in detail through the introduction, and this is what is done in many researches.

 

• The data section is too brief, the authors should discuss more on the data and the variables being used.

Reply: In the methodology section, the source of the study data and the variables used in the study were clarified with a description of those variables and how to calculate them according to what is customary. If you have an idea, please clarify it.

 

• The authors should discuss the variables in detail, not to use a table to present the variables

Reply: In the introduction to the study and an explanation of the meaning of sustainable growth and the variables that enter into the calculation of sustainable growth, those variables were theoretically clarified. The reader can find out the details of these variables in the Introduction section.

 

• The methodology section is too brief and too simple, the authors should discuss more on the methodology used in their paper. They should cite some papers for all the equations they are using and justify the use of equations is correct. It is good if the authors could use more advanced models in their study.

Reply: All specialists in finance know very well how to measure the variables used in the study models, such as the return on equity, for example. Is there a justification for citing in calculating the rate of return on equity, as I did not find a research that places a citation next to a certain variable from the obvious variables in the science of finance. As for the citation in calculating sustainable growth equations, it is explained next to the rates that these equations have been developed by (Higgins, 1977, 2018), and he is the first to put these equations.

 

• The authors should discuss their findings and draw more inferences from their findings.

Reply: The results have been reformulated in conclusion section.

 

• The authors should improve the presentation greatly.

Reply: Are there any suggestions that we can use more than what is used, we would be grateful to you.

• The conclusion section is too brief. They should discuss clearly the motives of their study, tell readers why their study is important and useful to academics and practitioners, state clearly their contributions to the literature in the conclusion section. They should point out the limitations of their approach and suggest directions for further study.

Reply: The conclusions section has been reformulated, and a contribution to this study has been added, and there are no limitations. A suggestion has been added to guide researchers in the same topic.

 

• There are many typos and structure problems. The authors should polish their paper greatly.

Reply: The above details have been checked

Round 2

Reviewer 1 Report

The innovation and scientific contribution of the current study is very limited. It should be rejected regrettably. 

Author Response

Reply: No comment.

Reviewer 2 Report

The authors made detailed revisions according to the issues pointed out. I believe the manuscript has been sufficiently improved to warrant publication in Economies.

Author Response

Reply: Thank you very much for giving us this compliment.

Reviewer 3 Report

Nil.

Author Response

Reply: Thank you for agreeing to grant approval to our research after the first review.

Author Response File: Author Response.docx

Reviewer 4 Report

1. The variable representations of multiple models in the manuscript are still inconsistent. So it needs to be further modified. 

2. Given the clear functional relationship between dependent variables and all independent variables, we can't see the significance of explaining the relationship between independent variables and dependent variables through several regression models in the manuscript.

Author Response

1- The variable representations of multiple models in the manuscript are still inconsistent. So it needs to be further modified. 

Reply: Some clarifications have been added after the equations.

 

2. Given the clear functional relationship between dependent variables and all independent variables, we can't see the significance of explaining the relationship between independent variables and dependent variables through several regression models in the manuscript.

Reply: A paragraph has been added to clarify the importance of using these models and the comparison between them, in addition to what was previously explained.

Reviewer 6 Report

I read the paper and find that the authors have revised their manuscript to address all my comments and I find the quality of the paper is good. Thus, I recommend accepting the paper.

Author Response

Thank you very much for this recommendation.

Round 3

Reviewer 4 Report

The explanatory variables in Model 3 (PRM) and Model 5 (REM) are represented by Xi, but these explanatory variables are not in the result analysis. For example，the results of PRM are given in Table 3. The explanatory variables are P, R, A and T, respectively. Please modify.

Author Response

Reply: changed as required.