The Influence of the Increase in Energy Prices on the Profitability of Companies in the European Union

Round 1

Reviewer 1 Report

The current study investigates the influence of the increase in energy prices on the profitability of companies in the European Union. The research subject is important and falls into the scope of the journal. However, there are many shortcomings in the paper as follows. Therefore, I recommend rejection.

1) Theoretical discussion on the current energy crisis was insufficient in the introduction section.

2) The primary motivation of the paper was not clearly stated. Therefore, the authors should clearly emphasize the primary motivation of the study in the introduction section.

3) The research gap should be unveiled, and how this gap will be filled by this study is clearly presented in the introduction section.

4) Section 2 was more likely as a literature review section instead of a theoretical background. Therefore, authors should incorporate those few theoretical discussions into section 1, only provide a literature review in section 2 and change the title of the section to "Literature Review".

5) There are several spelling errors in the paper. Therefore, one more round of proofreading is required.

6) Please check the consistency of the journal rules. Look at recently published papers in the journal. Particularly, please check the citations provided in the paper. (For instance, Choi et al., 2017, Anton, 2021, Droucopoulos and Lianos in 1993, Hirsch and Hartmann, 2014, etc.)

7) The research objective section should be removed and the main motivation should be outlined in the introduction section. Please kindly note that any reader doesn't want to read pages without knowing the main motivation of the paper.

8) Authors reported a high F-stats) and some t-stats while the R2 of the model was low. Therefore, one can doubt the robustness of the empirical findings and the non-existence of undesirable conditions such as multicollinearity. Please provide VIF scores for the model outlined in Table 3-4 and others.

9) Authors stated that they utilized the Breusch-Godfrey Serial Correlation LM Test for testing the autocorrelation of errors, Breusch-Pagan-Godfrey statistic for the heteroscedasticity of errors, and multicollinearity through Variance Inflation Factors, Jarque-Bera test for normality check. However, they did not report in the paper. All of them should be clearly reported.

10) The Conclusion section was ill-organized and does not provide policy proposals based on empirical findings.

11) Limitations of the research should be clearly presented. 

Moderate editing of English language required

Author Response

Thank you very much for the observations made. We have made several modifications that we hope will improve the article. In addition, we have made corrections to the style, vocabulary, and grammar.

- We have expanded the theoretical discussion on the current energy crisis.

- We have clearly emphasized the primary motivation of the study in the introduction section.

- We have revealed the research gap.

- We have presented the theoretical background in the Introduction, and in Section 2, we have -added the Literature Review.

- We have added tables to show multicollinearity through VIF scores, the Breusch-Godfrey Serial Correlation LM Test, and the Breusch-Pagan-Godfrey statistic for the heteroscedasticity of errors.

- We have provided policy proposals based on empirical findings in Section 6: Conclusions and Policy Recommendations.

- In Section 6: Conclusions and Policy Recommendations, we have presented the limitations of the research clearly.

- Pronouns have been avoided in the manuscript.

- The organization of the research paper has been added at the end of the introduction.

- References in tables have been added.

- The introduction now discusses why the paper selects the linear and logistic regression method.

- We have modified the sections: Section 3: Theoretical Framing and Research Hypothesis, Section 4: Data Description, Section 5: Results and Discussion, Section 6: Conclusions and Policy Recommendations.

- Citations have been adjusted to match the journal's style.

Reviewer 2 Report

This article uses linear and logistic regression methods to study the impact of external shocks and rising energy prices on the profitability of sample enterprises in 16 EU countries. The impact is also constrained by the characteristics of the enterprises. The research topic of the paper is of great practical significance, with appropriate research methods, sufficient research samples, strong persuasiveness, comprehensive and specific theoretical mechanism research and literature review, standardized empirical process, fair conclusions, and appropriate relevant suggestions and measures. The review results have been slightly improved and agreed to be adopted.

(1)The layout of the table needs to be standardized, usually using a three line table, and the saliency markings inside the table are not very obvious；

(2)A more detailed explanation and argumentation of the response measures should be provided by the country and enterprises.

Author Response

Thank you very much for the observations made. We have made several modifications that we hope will improve the article. In addition, we have made corrections to the style, vocabulary, and grammar.

- We have expanded the theoretical discussion on the current energy crisis.

- We have clearly emphasized the primary motivation of the study in the introduction section.

- We have revealed the research gap.

- We have presented the theoretical background in the Introduction, and in Section 2, we have -added the Literature Review.

- We have added tables to show multicollinearity through VIF scores, the Breusch-Godfrey Serial Correlation LM Test, and the Breusch-Pagan-Godfrey statistic for the heteroscedasticity of errors.

- We have provided policy proposals based on empirical findings in Section 6: Conclusions and Policy Recommendations.

- In Section 6: Conclusions and Policy Recommendations, we have presented the limitations of the research clearly.

- Pronouns have been avoided in the manuscript.

- The organization of the research paper has been added at the end of the introduction.

- References in tables have been added.

- The introduction now discusses why the paper selects the linear and logistic regression method.

- We have modified the sections: Section 3: Theoretical Framing and Research Hypothesis, Section 4: Data Description, Section 5: Results and Discussion, Section 6: Conclusions and Policy Recommendations.

- Citations have been adjusted to match the journal's style.

Reviewer 3 Report

The manuscript, at the present form needs some revisions. Therefore,  in the following, I enlist some issues that need to be incorporated by the authors:

·         Abstract should be rewritten as “For the methodology, we used linear and logistic regression methods” is not appropriate sentence. Also avoid use of pronouns in the manuscript.

·         Introduction should add more relevant and organization of research paper should be add in end of introduction.

·         References in Tables are missing. Reference style is not followed properly.

·         Why does the paper select linear and logistic regression method. The introduction should be highly discussed on this method’s selection.

·         Avoid pronouns in the manuscript like “We” etc.

·         Graphical flow diagram should be added.

·         What are the limitations of this paper? State limitation in the conclusion section. Conclusion is too lengthy.

·         Add the Nomenclature.

Author Response

Thank you very much for the observations made. We have made several modifications that we hope will improve the article. In addition, we have made corrections to the style, vocabulary, and grammar.

- We have expanded the theoretical discussion on the current energy crisis.

- We have clearly emphasized the primary motivation of the study in the introduction section.

- We have revealed the research gap.

- We have presented the theoretical background in the Introduction, and in Section 2, we have -added the Literature Review.

- We have added tables to show multicollinearity through VIF scores, the Breusch-Godfrey Serial Correlation LM Test, and the Breusch-Pagan-Godfrey statistic for the heteroscedasticity of errors.

- We have provided policy proposals based on empirical findings in Section 6: Conclusions and Policy Recommendations.

- In Section 6: Conclusions and Policy Recommendations, we have presented the limitations of the research clearly.

- Pronouns have been avoided in the manuscript.

- The organization of the research paper has been added at the end of the introduction.

- References in tables have been added.

- The introduction now discusses why the paper selects the linear and logistic regression method.

- We have modified the sections: Section 3: Theoretical Framing and Research Hypothesis, Section 4: Data Description, Section 5: Results and Discussion, Section 6: Conclusions and Policy Recommendations.

- Citations have been adjusted to match the journal's style.

Reviewer 4 Report

Overall, the document is not well organized, especially starting section 3. There is also a fundamental problem regarding what the authors try to measure. If I can read their mind, they are interested in comparing the effect of energy prices between 2018 and 2022 (assuming energy prices have increased). They can do this by comparing the effect of energy prices in 2018 on 2018 profitability with the impact of prices in 2022 on 2022 profitability. The way they ran their regression should always have a negative effect if the theory is respected.
See the detailed comments below.

Abstract
The paper aims to study the influence of energy prices, but the author mentioned other variables impact without any comment about the effect of energy prices

Introduction
- I do not know why the authors start the introduction with "See the end of the document for further details on references."

- risk

- The paper also mentioned the effect of COVID-19 and inflation in the introduction

Theoretical Background
I was lost in this section. The first paragraph mentions the COVID-19 impact as if it is the main variable and continues discussing the firm profitability theories. What's the link? I have no idea.

The main variable (energy prices) is finally introduced in paragraph 3, but in paragraph 4, the authors jumped back to COVID-19 and other variables. Then going back to energy prices, and so on. Though each paragraph is well written, the logical flow does not make this section easy to read and understand its point.

Section 3
- The title includes the word results, but the results are presented in section 4.
- Finally, the reader discovers that the main variable is the electricity price, not the energy price.
- The readers have to wait till the descriptive statistics to understand how the authors measure the "risk".
- The models estimated are given in the result section. They should be presented in this section using professionally written equations and numbering.
- Where are the tests for the null hypotheses 1-4?
- According to Table 1, the authors use the cost of energy in 2018 and in 2020. However, throughout the article, the authors mention the increase in energy prices. I do not see any variable measuring the change in energy prices.

Section 4
- Table 2 gives the descriptive statistics and should be placed with data. It does not present any result.
- The authors claim that "We can observe that the number of firms with profit less than or equal to zero increased in 2022 compared to 2018 and the number of firms with strictly less than zero profit increased in 2022 compared to 2018. We interpret these results that firms were negatively affected on average by the changing economic situation following the pandemic,..." How did the authors reach this conclusion? Did they use some statistical test?

- Why do the authors think the energy cost in 2018 is relevant for 2022 profitability?
- Similar comment for the claim in lines 354-360.
- Please report the heteroskedasticity given the cross-sectional aspect of the data.

- The authors claim "... we have an inverse relationship between cost and profit, therefore the increase in energy cost leads to a decrease in the company's profit in 2022." This is basically true because profit = revenue - cost. However, the authors wrongly interpret the coefficient as measuring the increase in energy prices from 2018 to 2022. The coefficient simply means if we increase the price (in 2022) by one unit, the profit will decrease by 1.12 units. It has nothing to do with the energy prices in 2018.
- The part the authors call "risk" was not described. Also, the logit coefficients cannot be interpreted as partial effects. In order to find the impacts, the authors should compute the marginal effects.

Conclusion
- I do not know why the authors make a big deal about the negative effect of energy prices: This is expected because Profit = Revenue - Cost
_ The authors keep bringing COVID-19 into their discussion though they did not use any COVID-19 variable. If it's used it has to be as a speculative interpretation: may be explained...

Overall, the document is not well organized, especially starting section 3. There is also a fundamental problem regarding what the authors try to measure. If I can read their mind, they are interested in comparing the effect of energy prices between 2018 and 2022 (assuming energy prices have increased). They can do this by comparing the effect of energy prices in 2018 on 2018 profitability with the impact of prices in 2022 on 2022 profitability.

Author Response

Thank you very much for the observations made. We have made several modifications that we hope will improve the article. In addition, we have made corrections to the style, vocabulary, and grammar.

- We have expanded the theoretical discussion on the current energy crisis.

- We have clearly emphasized the primary motivation of the study in the introduction section.

- We have revealed the research gap.

- We have presented the theoretical background in the Introduction, and in Section 2, we have -added the Literature Review.

- We have added tables to show multicollinearity through VIF scores, the Breusch-Godfrey Serial Correlation LM Test, and the Breusch-Pagan-Godfrey statistic for the heteroscedasticity of errors.

- We have provided policy proposals based on empirical findings in Section 6: Conclusions and Policy Recommendations.

- In Section 6: Conclusions and Policy Recommendations, we have presented the limitations of the research clearly.

- Pronouns have been avoided in the manuscript.

- The organization of the research paper has been added at the end of the introduction.

- References in tables have been added.

- The introduction now discusses why the paper selects the linear and logistic regression method.

- We have modified the sections: Section 3: Theoretical Framing and Research Hypothesis, Section 4: Data Description, Section 5: Results and Discussion, Section 6: Conclusions and Policy Recommendations.

- Citations have been adjusted to match the journal's style.

These would be feedback on specific observations:

- According to Table 1, the authors use the cost of energy in 2018 and in 2020. However, throughout the article, the authors mention the increase in energy prices. I do not see any variable measuring the change in energy prices. Response: We did not use a variable to measure price increases because we obtained energy market prices from Eurostat. We measured the change in firms' profitability as a result of the increase in energy prices, which led to increased total costs.

- Table 2 gives the descriptive statistics and should be placed with data. It does not present any result. Response: Kindly explain what additional results you believe should be included in the table, apart from those presented in the text

- Why do the authors think the energy cost in 2018 is relevant for 2022 profitability? Response: This is an interpretation involving lag, considering it from both moments T and T-1, and since we do not have other time points besides 2018 and 2022.

- I do not know why the authors make a big deal about the negative effect of energy prices: This is expected because Profit = Revenue – Cost. Response: Our study indicates that the influence of electricity prices had a significant impact on firms' profitability.

- The authors keep bringing COVID-19 into their discussion though they did not use any COVID-19 variable. If it's used it has to be as a speculative interpretation: may be explained... Response: We attempted to clarify in the introduction that our study does not focus on the COVID-19 pandemic itself; instead, it considers it as a timeframe during which energy prices rose and economic conditions underwent significant changes.

Round 2

Reviewer 1 Report

The authors have adressed most of former queries. However, there is a one more round of proofreading for minor spelling errors. Therefore, the editorial can consider the paper for potential publication after grammar revision.

Minor editing of English language required

Author Response

Thank you for your comments. 
We have attached the article with the English corrections, for which we have a certificate, at https://0-www-mdpi-com.brum.beds.ac.uk/authors/english

Best regards,
The Authors

Author Response File: Author Response.docx

Reviewer 3 Report

It can be accepted, however language must be thoroughly checked before publication. Also cite latest references as it is overlooked.

Author Response

Thank you for your comments. 
We have attached the article with the English corrections, for which we have a certificate, at https://0-www-mdpi-com.brum.beds.ac.uk/authors/english.
Some recent references have been added.

Best regards,
The Authors

Author Response File: Author Response.docx

Reviewer 4 Report

No comments

Author Response

We have attached the article with the English corrections, for which we have a certificate, at https://0-www-mdpi-com.brum.beds.ac.uk/authors/english.

Best regards,
The Authors

Author Response File: Author Response.pdf

Round 3

Reviewer 4 Report

None.

None