Corporate Financial Performance vs. Corporate Sustainability Performance, between Earnings Management and Process Improvement

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

I have read the article and respectfully suggest the following recommendations to improve it. These recommendations can provide a more comprehensive and nuanced analysis of the interplay between financial resilience, sustainability, business process improvements, economic value added, and TQM practices:

The current model does not sufficiently address the role of financial resilience in firms' ability to withstand economic shocks. The theoretical framework should incorporate more detailed metrics on liquidity ratios, solvency ratios, and other financial health indicators to provide a comprehensive view of financial resilience. On one hand, the model should place greater emphasis on the integration of sustainability metrics. While the environmental and social dimensions are mentioned, they are not fully incorporated into the quantitative analysis. It is recommended to use more robust sustainability indices, such as the Dow Jones Sustainability Index or the Global Reporting Initiative standards, to measure firms' sustainability efforts more effectively. On the other hand, the methodology should expand on how business process improvements are quantified. The current approach lacks specificity in measuring the impact of Total Quality Management (TQM) and Lean practices on financial resilience. Detailed case studies or examples of successful business process improvements and their financial outcomes could be included to strengthen this section.

The results section should provide a more detailed discussion of how financial resilience metrics influenced firms' performance during the COVID-19 pandemic. This could include a breakdown of which financial ratios were most predictive of resilience and why. Additionally, discussing how different financial strategies (e.g., debt restructuring, equity financing) impacted resilience would be valuable. On one hand, the current findings suggest a negative impact of sustainability frameworks on financial resilience. This conclusion should be revisited, as it contradicts much of the existing literature which posits that sustainable practices enhance long-term resilience. A more detailed examination of the data, including possible confounding factors and a sensitivity analysis, is recommended to ensure robust conclusions. On the other hand, the discussion should elaborate on the specific business process improvements that had the most significant impact on financial resilience. Examples from the data or case studies of firms that successfully implemented process improvements and saw enhanced resilience would add practical value to the findings. Finally, the variation in EVA during the pandemic is discussed, but the analysis could be improved by linking it more directly to specific managerial actions or external factors. For example, how did changes in market conditions or government policies impact EVA? A more detailed industry-by-industry analysis could also provide insights into sector-specific drivers of EVA.

Author Response

REVIEWER I

I have read the article and respectfully suggest the following recommendations to improve it. These recommendations can provide a more comprehensive and nuanced analysis of the interplay between financial resilience, sustainability, business process improvements, economic value added, and TQM practices:

• The current model does not sufficiently address the role of financial resilience in firms' ability to withstand economic shocks.
  • The theoretical framework should incorporate more detailed metrics on liquidity ratios, solvency ratios, and other financial health indicators to provide a comprehensive view of financial resilience.

Authors’ response:

We fully understand your concern. However, we mention that the dimensions included in the model capture already multiple dimensions of corporate financial resilience. As per the description of each proxy variable use to estimate the econometric models, we have described the components of the StarMine Refinitiv score, both related to EQ (Earning Quality) and CS (Credit Score) models. For instance, the EQ model provides for each company scores that consider both country and industry specific, based on a model that is defined starting from DuPont decomposition model of the corporate profitability. Therefore, the Earnings Management dimensions provides scores for both corporate liquidity (Cash flow generation from operations), accruals quality, or operating efficiency. Indeed, fully agree with you that it would have been opportune to incorporate a separate corporate liquidity ratio, unfortunately we are limited with this study on the volume of data available. However, this liquidity dimension is captured by the Credit Score, which reflect companies’ financial health, including 5 components, as described in the table with variables definition.

• On one hand, the model should place greater emphasis on the integration of sustainability metrics. While the environmental and social dimensions are mentioned, they are not fully incorporated into the quantitative analysis.

Authors’ response:

As per your recommendation, we have performed additional robustness analysis that look for individual impact of each ESG pillar (environmental, social, governance) on the variation of EVA. Overall, the results show that variation of EVA is significantly impacted only by the Environmental pillar of the ESG score.

• It is recommended to use more robust sustainability indices, such as the Dow Jones Sustainability Index or the Global Reporting Initiative standards, to measure firms' sustainability efforts more effectively.

Authors’ response:

We fully agree with this approach you recommend. Unfortunately, we are limited with this study to a set of data we were provided, as currently we do not have any more access to the Refinitiv database. Also, looking for alternative ESG score metrics, we have the same opinion with you, however we do not have access to those data.

For instance, we have tested the relevance of the GRI index score, which is rather a dummy variable that shows if a company reports in line with the GRI framework or not. However, the results were not statistically significant for both the GRI score moderating effect on EVA variation, or the mediating effect on EVA variation in relation with the ESG score. Therefore, the potential effect of higher corporate transparency (better voluntary ESG disclosure) does not impact significantly the variation in EVA, most probably because of a compensation effect of the positive outcome expected for higher corporate transparency and the negative effect generated by the additional costs with the preparation and auditing of those corporate reports.

• On the other hand, the methodology should expand on how business process improvements are quantified. The current approach lacks specificity in measuring the impact of Total Quality Management (TQM) and Lean practices on financial resilience.

Authors’ response:

The proxy we use is indeed defined on a broader way, incorporating in the score provided by Refinitiv database both if companies apply TQM, Sig Sigma project management methodology and Lean (Kaizen) management principles in production and across supply chains. However, the variable provides insights to the discussion, even if partially. After all, this dimension reflects a set of essential dynamic capabilities companies should acquire of create on their own, in order to ensure better premises of corporate financial resilience and lower impact on corporate financial risk during times of crisis.

Therefore, to make more clear for each reader, we have mentioned in the Conclusion section this would be one caveat of the study. In order to collect more specific data on those dimensions, and in general related to corporate business excellence governance and strategies, a mixed research design would be more suitable, so that via a questionnaire administered to top and middle management we collect those data, and in parallel we connect those data with the financial information extracted from the available databases, such as Refinitiv. On those circumstance, we already have in plan for a future research project such approach, but this time to evaluate that time the trilogy nexus between organizational resilience, sustainability and business process management.

• Detailed case studies or examples of successful business process improvements and their financial outcomes could be included to strengthen this section.

Authors’ response:

Thank you for your feedback on this point as well. We have considered it and revised the structure of the section of Literature Review. One of the sub-sections is dedicated solely for a better description of the relationship between corporate financial resilience and corporate business excellence, in general. We have emphasized as well the more recent insights on this topic, with focus on the impact of COVID 19 pandemic. Actually, each dimension of the conceptual research framework has a dedicated subsection, with focus on the impact of COVID 19 pandemic.

Along the paper we have tried to provide more comprehensive examples of how this relationship works, through what channel or related to what process-oriented instruments. We hope this approach bring more clarity for the readers.

• The results section should provide a more detailed discussion of how financial resilience metrics influenced firms' performance during the COVID-19 pandemic. This could include a breakdown of which financial ratios were most predictive of resilience and why.

Authors’ response:

We agree with you observation. Unfortunately, we do not have access anymore to the Refinitiv database to extract additional information. Also, to resume the analysis to a limited set of financial ratios would be somehow subjective, as the concept itself of corporate financial resilience is still not defined through a unanimous position across the literature. Some authors focus rather on the sales side of the, others on the cost structure stickiness in times of crisis. We believe those aggregate scores provided by Refinitiv database capture an overall image of firms’ financial health. However, we acknowledge this caveat of the study, reason why we have mentioned it on the Conclusion section and will surely consider your recommendation on the future research projects. We really appreciate your comment that is fully valid.  

• Additionally, discussing how different financial strategies (e.g., debt restructuring, equity financing) impacted resilience would be valuable.

Authors’ response:

Your recommendation is valid. Unfortunately, we do not have access anymore to the Refinitiv database to extract additional information related to the decomposition of the weighted cost of capital considered in our study into the two components. Instead, we have incorporated in the models both Credit score and Altman score proxies that represent scores incorporating multiple financial ratios which gives us indication on companies’ financing needs from external sources. For the future research project we will surely consider your observations, as indeed, in times of crisis it is not clear if the pecking order theory or the trade-off theory are more valid when discussing about the optimal financial capital structure.

• On one hand, the current findings suggest a negative impact of sustainability frameworks on financial resilience. This conclusion should be revisited, as it contradicts much of the existing literature which posits that sustainable practices enhance long-term resilience.

Authors’ response:

Thank you very much to this observation. We understand your concern on the type of the relationship between the two groups of corporate performances. However, we mention that in the literature there is still a mix of results on this direction, which are better reflected on several meta-analysis already performed and published so far to which we have made reference in the dedicated subsection of the Literature review that addresses the nexus between corporate financial performance and corporate sustainability performance.

Additionally, we outline that studies made on this nexus covering the period of COVID 19 are not too many, providing scattered and mixed results, mainly because they are limited to one country or one industry. We have emphasized in the dedicated subsection for the literature review few international studies in this direction. Overall, those studies highlight the fact that the expected positive outcome for this nexus betweetn CSP and CFP is highly conditioned by a series of key success factors which not all the companies have.

For a better clarity on the results, we have performed additional robustness analysis, looking for the difference of the impact of CSP on both EVA variation and on the level of EVA.

• A more detailed examination of the data, including possible confounding factors and a sensitivity analysis, is recommended to ensure robust conclusions.

Authors’ response:

We fully agreed with your recommendation, reason why we have performed additional robustness analysis. The main additional insights brought to the discussion in this paper are related to the incorporate in the econometric model of the size of the company, defined as the logarithm of capital invested. We have also added analysis on the individual effect of each ESG pillar on the variation of EVA. Nonetheless, we try to bring more clarity on the results by estimating the effects of the factors included on the initial models on both the variation in EVA and the level of EVA across the analyzed period. Thank you for your comment!

• On the other hand, the discussion should elaborate on the specific business process improvements that had the most significant impact on financial resilience.
  • Examples from the data or case studies of firms that successfully implemented process improvements and saw enhanced resilience would add practical value to the findings.

Authors’ response:

We have considered it and revised the structure of the section of Literature Review. One of the sub-sections is dedicated solely for a better description of the relationship between corporate financial resilience and corporate business excellence, in general. We have emphasized as well the more recent insights on this topic, with focus on the impact of COVID 19 pandemic.

Along the paper we have tried to provide more comprehensive examples of how this relationship works, through what channel or related to what process-oriented instruments. We hope this approach bring more clarity for the readers. If you consider the current version still lack clarity on how business process improvements consolidated corporate financial resilience, we will develop those sections. Unfortunately, the size of the paper is already big and I’m concerned with comments from editors’ side on this direction.

• Finally, the variation in EVA during the pandemic is discussed, but the analysis could be improved by linking it more directly to specific managerial actions or external factors.
  • For example, how did changes in market conditions or government policies impact EVA?
  • A more detailed industry-by-industry analysis could also provide insights into sector-specific drivers of EVA.

Authors’ response:

We agree with your comments. However, the paper is already lengthy and I’m afraid on comments from editors. However, if you consider extremely important for the economy of the paper, I can incorporate additional analysis on those research directions, looking including for the COVID 19 Stringency index and some cultural dimensions on country level. Additional analysis of industry-by-industry can be done as well, maybe with focus on a limited number of industries considered in the discussion, such as the Energy, Utilities, Healthcare and Telecommunications sectors, if you agree.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

The study 'Corporate financial performance versus corporate sustainability performance, between earnings management and process improvement' raises an interesting research thread worthy of scientific recognition. The authors focused their attention on analysing the financial resilience of companies versus their strategic vulnerability to sustainability. The context adopted for this study is the COVID-19 pandemic and its impact on the business environment. The Authors took as the objective of the paper to establish the relationship between a company's sustainability performance and its financial resilience in the cognitive areas adopted by the Authors. 

The abstract of the paper presents the background and subject of the research. The scope and methodology of the research are also generally indicated and the findings are discussed. The abstract does not indicate the gap in the literature to which the paper responds, nor does it emphasise the novelty dimension of the study. Furthermore, the abstract is too broad; I believe it should be shortened. The indicated content should only be signalled - in particular the formulation of the research question posed (unclear) and the scope of the findings (should be presented more generally).  In terms of the comments made, the executive summary needs to be refined.

The introductory section presents the background to the research and justifies the need for it. This section is extremely brief. Similarly, the literature review is very concise (only 29 references). I believe that both sections should be expanded. The situation of companies in the period up to and after the pandemic should be discussed more extensively in order to assess the impact of the pandemic on the strategy and performance of companies. The trend towards sustainability should be pointed out. In this respect, it will be valuable to discuss contemporary business models focused on sustainability as a direction for strengthening competitiveness. Many studies are available in this area. Among the most recent, it is worth studying https://doi.org/10.3390/su15118889, https://doi.org/10.3390/su141811695.

Section 3 Materials and Methods developed correctly and comprehensively with a division into thematic sections. Discusses the theoretical research framework, with an indication of the research problem, hypotheses and research design. In the following section (section 3.2), it presents the research sample and explains the research steps. It then explains the research models and econometric formulas. I believe that sections 3.3 and 3.4 (erroneously labelled again as 3.3) should be embedded in the literature. In this respect, the Materials and Methods section should be refined.

Section 4 Results and Discussion guided generally correctly, with division into thematic sections. Figures, table shots to facilitate analysis of content are an added value. The discussion section should be refined. In the Discussion section, there should be more discussion of the Authors' findings in relation to existing literature findings. Implications should be refined. I suggest separating the 'results' section from the 'discussion' issues.

In the conclusion section, the study's contribution to theory and practice should be highlighted, demonstrating its novelty.

The study presented is interesting. However, it requires refinement in the areas identified in the review. The areas of introduction, discussion and conclusion need to be refined. The literature needs to be strengthened. 

 

Author Response

REVIEWER 2

The study 'Corporate financial performance versus corporate sustainability performance, between earnings management and process improvement' raises an interesting research thread worthy of scientific recognition. The authors focused their attention on analyzing the financial resilience of companies versus their strategic vulnerability to sustainability. The context adopted for this study is the COVID-19 pandemic and its impact on the business environment. The Authors took as the objective of the paper to establish the relationship between a company's sustainability performance and its financial resilience in the cognitive areas adopted by the Authors. 

The abstract of the paper presents the background and subject of the research. The scope and methodology of the research are also generally indicated and the findings are discussed.

• The abstract does not indicate the gap in the literature to which the paper responds, nor does it emphasize the novelty dimension of the study.

Authors’ response:

Thank you for your feedback. We fully agree with your observation, reason why we have changed as well the abstract, based on your observation

• Furthermore, the abstract is too broad; I believe it should be shortened. The indicated content should only be signaled - in particular the formulation of the research question posed (unclear) and the scope of the findings (should be presented more generally).

Authors’ response:

Please be informed that with the revised version of the paper, we have changed as well the abstract, based on your observation

 In terms of the comments made, the executive summary needs to be refined.

The introductory section presents the background to the research and justifies the need for it. This section is extremely brief. Similarly, the literature review is very concise (only 29 references).

• I believe that both sections should be expanded. The situation of companies in the period up to and after the pandemic should be discussed more extensively in order to assess the impact of the pandemic on the strategy and performance of companies.

Authors’ response:

We fully agree with your position. Please be informed that with the revised version of the paper, we have added more than 100 additional references, developing both the Introduction and Literature Review section. In case of the literature review, we have created separate sub-sections, each dedicated for one of the dimensions incorporated in the research conceptual framework.

• The trend towards sustainability should be pointed out. In this respect, it will be valuable to discuss contemporary business models focused on sustainability as a direction for strengthening competitiveness. Many studies are available in this area. Among the most recent, it is worth studying https://doi.org/10.3390/su15118889, https://doi.org/10.3390/su141811695.

Authors’ response:

Please be informed that with the revised version of the paper, we have added the two reference to the paper, as they are indeed relevant for the topic of the paper. Thank you.

Section 3 Materials and Methods developed correctly and comprehensively with a division into thematic sections. Discusses the theoretical research framework, with an indication of the research problem, hypotheses and research design. In the following section (section 3.2), it presents the research sample and explains the research steps. It then explains the research models and econometric formulas.

• I believe that sections 3.3 and 3.4 (erroneously labelled again as 3.3) should be embedded in the literature. In this respect, the Materials and Methods section should be refined.

Authors’ response:

Thank you for the observations, as we’ve missed this detail. Please be informed that with the revised version of the paper, we have added restructured the literature review in multiple subsections, including the section you referred to.

Section 4 Results and Discussion guided generally correctly, with division into thematic sections. Figures, table shots to facilitate analysis of content are an added value.

• The discussion section should be refined. In the Discussion section, there should be more discussion of the Authors' findings in relation to existing literature findings.

Authors’ response:

Thank you for the observation. We fully agree with your opinion, reason why we have first extended the list of references; second, we have created a separate Discussion section on which we have made reference to the existing literature. However, we would like to outline that so far we have not found studies with the same approach we’ve adopted in this paper. There are numerous studies addressing the nexus between corporate sustainability performance and corporate financial performance, but less studies that address the nexus between total quality management (including the business process improvements) and corporate financial performance and they are generally older than 10 years. Also, as of our knowledge, this is the first study that looks for the impact of ESG factor on EVA, as the regular approach found in the literature is, either related to traditional accounting profitability measures (ROA, ROE), or stock market measures (Tobin’s Q). Also, the studies on EVA provide scattered results, as they are mainly limited to one country/industry analysis, with predilection India.

• Implications should be refined.

Authors’ response:

In both the Discussion and Conclusion section we have highlighted some of the policy and managerial implications. Mainly the policy implication consists of raising awareness among governments that the objective of SDGs achievement can be done only with financial support and guidelines from the governments side, in order the national SDGs directions of actions to align with the corporate strategic directions. The managerial implications outlined are some more, emphasizing some of the premises for adequate corporate financial resilience, respectively business processes and operations redesign to ensure operating efficiency, integration of corporate financial resilience action plans with the considerations of corporate sustainability transition and TQM and lean management, looking for a more process-oriented approach, to ensure higher flexibility and therefore resilience. Otherwise, if companies do not ensure adequate corporate financial resilience, the net external shock (crisis) that will come will find them again unprepared, with the risk of negative effects determined by the phenomenon of debt overhanging.

• I suggest separating the 'results' section from the 'discussion' issues.

Authors’ response:

As per your recommendation, we have separated the Results section from the Discussion section. Thank you for the observation.

In the conclusion section:

• The study's contribution to theory and practice should be highlighted, demonstrating its novelty.

Authors’ response:

In the Conclusion section we have highlighted some of the policy and managerial implications. Mainly the policy implication consists of raising awareness among governments that the objective of SDGs achievement can be done only with financial support and guidelines from the governments side, in order the national SDGs directions of actions to align with the corporate strategic directions. The managerial implications outlined are some more, emphasizing some of the premises for adequate corporate financial resilience, respectively business processes and operations redesign to ensure operating efficiency, integration of corporate financial resilience action plans with the considerations of corporate sustainability transition and TQM and lean management, looking for a more process-oriented approach, to ensure higher flexibility and therefore resilience. Otherwise, if companies do not ensure adequate corporate financial resilience, the net external shock (crisis) that will come will find them again unprepared, with the risk of negative effects determined by the phenomenon of debt overhanging.

The study presented is interesting. However, it requires refinement in the areas identified in the review. The areas of introduction, discussion and conclusion need to be refined. The literature needs to be strengthened. 

Authors' response: Thank you very much for your insights. Based on them we propose a refined version of the paper that we believe have reached an adequate level of research quality.

Reviewer 3 Report

Comments and Suggestions for Authors

This paper offers a very interesting approach to studying this subject. I believe the paper' quality would be substantially upgraded if:

1. the literature survey on earnings management was further updated with recent papers like:

- Toudas, K., Parenaki, M.G., & Boufounou, P. (2024) Creative Accounting: A Challenge or a Threat for  SMEs? Empirical Evidence.  Journal of Governance and Regulation, 13(2)  https://doi.org/10.22495/jgrv13i2art9

- Wang, J., Georgakopoulos, G., Toudas, K., & Boufounou, P. (2023) The Informativeness of Non-GAAP Earnings: Empirical Evidence on China, Theoretical Economic Letters, Special Issue “Accounting and Finance”, 13(4), 1079-1103, August https://doi.org/10.4236/tel.2023.134059

2. for each variable used, a  short literature review was added, that would present the findings of previous papers that used this specific variable, presenting also their main findings.

3. the study findings for each variable were evaluated in comparison to those obtained by previous relative studies.

 

 

Author Response

Reviewer III

This paper offers a very interesting approach to studying this subject.

I believe the paper' quality would be substantially upgraded if:

• The literature survey on earnings management was further updated with recent papers like:
  • Toudas, K., Parenaki, M.G., & Boufounou, P. (2024) Creative Accounting: A Challenge or a Threat for  SMEs? Empirical Evidence.  Journal of Governance and Regulation, 13(2) https://doi.org/10.22495/jgrv13i2art9
  • Wang, J., Georgakopoulos, G., Toudas, K., & Boufounou, P. (2023) The Informativeness of Non-GAAP Earnings: Empirical Evidence on China, Theoretical Economic Letters, Special Issue “Accounting and Finance”, 13(4), 1079-1103, August https://doi.org/10.4236/tel.2023.134059

Authors’ response:

Please be informed that with the revised version of the paper, we have added the two reference to the paper, as they are indeed relevant for the topic of the paper. Thank you.

• for each variable used, a short literature review was added, that would present the findings of previous papers that used this specific variable, presenting also their main findings.

Authors’ response:

Thank you for your comment. We fully agree with you, reason why we have refined the Literature review section and restructured it into separate subsections, each dedicated for one of the dimensions incorporated into the conceptual research framework of the paper. Through this approach, we have covered the reasoning behind our choice for each variable, with reference to already existing studies that highlight their relevance on our discussion.

• the study findings for each variable were evaluated in comparison to those obtained by previous relative studies.

Authors’ response:

Thank you for the observation. We fully agree with your opinion, reason why we have first extended the list of references; second, we have created a separate Discussion section on which we have made reference to the existing literature. However, we would like to outline that so far we have not found studies with the same approach we’ve adopted in this paper. There are numerous studies addressing the nexus between corporate sustainability performance and corporate financial performance, but less studies that address the nexus between total quality management (including the business process improvements) and corporate financial performance and they are generally older than 10 years. Also, as of our knowledge, this is the first study that looks for the impact of ESG factor on EVA, as the regular approach found in the literature is, either related to traditional accounting profitability measures (ROA, ROE), or stock market measures (Tobin’s Q). Also, the studies on EVA provide scattered results, as they are mainly limited to one country/industry analysis, with predilection India.

Author Response File: Author Response.pdf

Reviewer 4 Report

Comments and Suggestions for Authors

The authors explored the relationship between corporate financial resilience and their vulnerabilities in strategic sustainable development, in the context of the implications of the COVID-19 pandemic on the business environment. The research uses data from companies in the European Union and employs multiple OLS regression, complemented by quantile regression analysis for robustness. The results indicate that adherence to sustainability frameworks can initially deteriorate corporate financial resilience. It emphasizes that quality management and improvements in business processes have a significant positive impact on financial resilience. In contrast, earnings management practices and exposure to financial risks show negative impacts. The study highlights the importance of quality management and suggests that improved corporate governance and effective institutional regulations are crucial to ensuring corporate financial resilience.

After careful analysis, I regret to inform that my decision is to reject or to request a complete reformation. The conclusions do not seem to be supported, both by the way the study was organized and by how the data were analyzed.

I suggest the authors consider the following points:

1. Selection of Countries and Generalization of Results

   The choice to limit the study to just four developed European countries, justified by the authors by the uniformity of policies to combat COVID-19, raises significant concerns about the generalization of the results. While political consistency might minimize variability in regional effects, this approach could omit important economic and cultural nuances that differentiate these economies. Therefore, an expansion of the geographic scope or a more in-depth discussion on how these differences could influence the results is suggested, to avoid an overly simplified interpretation of financial resilience dynamics.

2. Methodology of Temporal Analysis and Treatment of Seasonality

   Documentation on the seasonal adjustments applied to the EVA time series is insufficient, particularly regarding the mention of seasonal adjustments in annual data. This lack of methodological clarity may confuse readers about how such adjustments are implemented and what their implications are for the analysis. For annual data, where each point already summarizes intra-annual variations, the application and interpretation of seasonal adjustments require robust and transparent justification.

3. Empirical Bases of the Conclusions

   The study's conclusions appear to overly depend on the visual interpretation of graphs, without adequate support from robust statistical analyses. This approach can limit the validity of the inferences made, especially in an academic context where statistical rigor is crucial. It is recommended to strengthen the empirical bases of the conclusions with additional statistical methods that confirm or refute the visual observations.

4. Relevance of Regressions with Low R-squared

   The conclusions derived from regression models that present low R-squared values raise questions about the effectiveness of the estimated parameters in representing the studied reality. A low R-squared suggests that the model does not explain a substantial proportion of the data variability, which can compromise the relevance and applicability of the conclusions. It would be prudent for the authors to discuss these limitations explicitly and consider including additional variables or using alternative models that could provide a better explanation for the phenomena under study.

 

Author Response

The authors explored the relationship between corporate financial resilience and their vulnerabilities in strategic sustainable development, in the context of the implications of the COVID-19 pandemic on the business environment. The research uses data from companies in the European Union and employs multiple OLS regression, complemented by quantile regression analysis for robustness. The results indicate that adherence to sustainability frameworks can initially deteriorate corporate financial resilience. It emphasizes that quality management and improvements in business processes have a significant positive impact on financial resilience. In contrast, earnings management practices and exposure to financial risks show negative impacts. The study highlights the importance of quality management and suggests that improved corporate governance and effective institutional regulations are crucial to ensuring corporate financial resilience. After careful analysis, I regret to inform that my decision is to reject or to request a complete reformation.

The conclusions do not seem to be supported, both by the way the study was organized and by how the data were analyzed. I suggest the authors consider the following points:

• Selection of Countries and Generalization of Results.

The choice to limit the study to just four developed European countries, justified by the authors by the uniformity of policies to combat COVID-19, raises significant concerns about the generalization of the results. While political consistency might minimize variability in regional effects, this approach could omit important economic and cultural nuances that differentiate these economies. Therefore, an expansion of the geographic scope or a more in-depth discussion on how these differences could influence the results is suggested, to avoid an overly simplified interpretation of financial resilience dynamics.

Authors’ response:

Thank you for your observation. We agree with your statement that in the analysis can be integrated a deeper analysis on the potential differences among the countries considered for the analysis, as each government has designed specific public policies and specific financial support programs for the private and public sector as well. However, there are several considerations behind our choice. First, we could have collected enough data on both financial and non-financial information from Refinitiv only for companies listed on economies with highly capitalized stock markets. So far, we do not have any more access to this database. Second, our main purpose concerning sample selection was to provide insights on multiple countries. Unfortunately, in the Refinitiv database, we did not find enough complete data for listed companies with headquarters in emerging economies in the EU region. This was our initial idea, to look for a comparison between developed and emerging economies. Third, we have limited our choice only to the EU region, as it is well-known the regional coordination in many aspects of the management of the previous COVID 19 pandemic.

We have in plan for the future performing a new research project which looks for both developed and developing companies, but this time comparing G-20 countries with ASEAN, EU and MENA developing countries, which allows us to make various comparisons from different perspectives, such as COVID 19 pandemic Stringency score, national cultural score, quality of governance (Rule of Law, SARS etc.). We tried to capture in the Conclusions section this future research agenda. Forth, such an extended analysis, supported by statistical tests and analysis would require several pages. However, I’m already concerned with the lengthy revised paper from editors’ side.

Instead, we have pointed along the paper the main concern across not only the countries analyzed, but also other countries, respectively that governments allocation of resources for COVID 19 pandemic crisis support was not quite done on the optimal way, mainly because of inadequate criteria of eligibility or because of the scoping of the programs proposed for subsidies, differed taxation etc.

Additionally, we have captured in the first section of the exploratory analysis some insights on the differences between the countries analyzed, from the perspective of variation in EVA and respectively the level of EVA. If you consider for the conomy of the paper, that is really needed, we can perform a deeper analysis, unless we are not limited by editors with a maximum number of pages. We just mention that our first objective of the paper was to focus on corporate level analysis, without a focus on macroeconomic level. Instead, we have added a separate subsection on the literature review that reflects the main effects determined by COVID 19 pandemic on macroeconomic level.

• Methodology of Temporal Analysis and Treatment of Seasonality.

Documentation on the seasonal adjustments applied to the EVA time series is insufficient, particularly regarding the mention of seasonal adjustments in annual data. This lack of methodological clarity may confuse readers about how such adjustments are implemented and what their implications are for the analysis. For annual data, where each point already summarizes intra-annual variations, the application and interpretation of seasonal adjustments require robust and transparent justification.

Authors’ response:

We understand your concern. Thank you for your feedback. We have changed the figure representing the main steps of the data curation and analysis, emphasizing that the adjustment on the EVA time series was rather related to the deduction of the trend component. We consider this adjustment helps us to capture a better image of the idiosyncratic financial resilience, with the focus on firms’ level, avoiding the discussion on systemic changes generated by COVID 19, because of political, cultural or macroeconomic national factors

However, in order to ensure reliability on the test results, following your recommendation, we have run additional statistical tests to check if there are significant changes on the effects of proposed drivers on the variation of EVA, if using unadjusted time series, but we did not find such significant differences. The heterogeneity on the sample analyzed is rather related to corporate business models, than to macroeconomic configuration, as the sample is not really extended.

Additionally, we have provided more details on the way we have extracted the trend from the time series, which is actually a quarterly based time series, within the Methodology section.

• Empirical Bases of the Conclusions.

The study's conclusions appear to overly depend on the visual interpretation of graphs, without adequate support from robust statistical analyses. This approach can limit the validity of the inferences made, especially in an academic context where statistical rigor is crucial. It is recommended to strengthen the empirical bases of the conclusions with additional statistical methods that confirm or refute the visual observations.

Authors’ response:

We fully agreed with your recommendation, reason why we have performed additional robustness analysis. The main additional insights brought to the discussion in this paper are related to the incorporate in the econometric model of the size of the company, defined as the logarithm of capital invested. We have also added analysis on the individual effect of each ESG pillar on the variation of EVA. Nonetheless, we try to bring more clarity on the results by estimating the effects of the factors included on the initial models on both the variation in EVA and the level of EVA across the analyzed period. We have looked as well on the impact of the choice of a company if they prepare reports based on the GRI framework of not, but do additional insights were identified.

The results were presented in a more contextualized sense, linking them to the literature. For this purpose, we have made a separate section for Discussion. To provide a better picture on the purpose of the paper, we have extended the list of references with more than 100 references.

We have considered it and revised the structure of the section of Literature Review. One of the sub-sections is dedicated solely for a better description of the relationship between corporate financial resilience and corporate business excellence, in general. We have emphasized as well the more recent insights on this topic, with focus on the impact of COVID 19 pandemic.

Along the paper we have tried to provide more comprehensive examples of how this relationship works, through what channel or related to what process-oriented instruments. We hope this approach bring more clarity for the readers. If you consider the current version still lack clarity on how business process improvements consolidated corporate financial resilience, we will develop those sections. Unfortunately, the size of the paper is already big and I’m concerned with comments from editors’ side on this direction.

Thank you for your comment!

• Relevance of Regressions with Low R-squared.

The conclusions derived from regression models that present low R-squared values raise questions about the effectiveness of the estimated parameters in representing the studied reality. A low R-squared suggests that the model does not explain a substantial proportion of the data variability, which can compromise the relevance and applicability of the conclusions. It would be prudent for the authors to discuss these limitations explicitly and consider including additional variables or using alternative models that could provide a better explanation for the phenomena under study.

Authors’ response:

Based on your recommendation, we have looked for incorporation of additional control variables. The only one that has brough value add to the economics of the paper was the size, measured as the logarithm of the capital invested. We have considered additional econometric models for robustness purpose, in order to bring more clarity to the discussion. The R square has increase significantly compared with the initial models and the results are confirmed even after controlling for size impact, or different ESG pillars impact on the variation of EVA.

To provide better image on the impact of those drivers, we have estimated econometric models that assess the impact on both the variation in EVA (which we consider express better a measure of corporate financial resilience) and the level of EVA.

Additionally, we have emphasized the caveats of the study, with the aim that for future agenda we will consider eliminating them by choosing a mix research design. In order to collect more specific data on those dimensions, and in general related to corporate business excellence governance and strategies, a mixed research design would be more suitable, so that via a questionnaire administered to top and middle management we collect those data, and in parallel we connect those data with the financial information extracted from the available databases, such as Refinitiv. On those circumstance, we already have in plan for a future research project such approach, but this time to evaluate that time the trilogy nexus between organizational resilience, sustainability and business process management.

We really appreciate your effort on reviewing our paper. Thank you very much!

We hope that we the revised version of the paper we have brought more clarity on the concerns you have raised on this review.

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

The authors have improved the article. 

Reviewer 4 Report

Comments and Suggestions for Authors

The authors have satisfactorily addressed the questions raised during the review process, and the newly submitted version has been significantly improved. I am of the opinion that the manuscript is now suitable for publication in the journal.