The Influence of Corporate Social Responsibility on Investment Efficiency and Innovation

We examine two important channels through which corporate social responsibility (CSR) affects firm value: investment efficiency and innovation. We find that firms with higher CSR performance invest more efficiently: these firms are less prone to invest in negative NPV projects (overinvestment) and less prone to forego positive NPV projects (underinvestment). We also find that firms with higher CSR performance generate more patents and patent citations. Mediation analysis indicates that firms with higher CSR performance are more profitable and valuable, consequences partially attributable to efficient investments and innovation. These results, robust to alternate model specifications, lend support to enlightened stakeholder theory (Jensen 2001).

Keywords: corporate social responsibility, investment efficiency, innovation, patents

JEL Classification: M41, M14, G31, O32

Suggested Citation: Suggested Citation

Cook, Kirsten A. and Romi, Andrea and Sanchez, Daniela and Sanchez, Juan Manuel, The Influence of Corporate Social Responsibility on Investment Efficiency and Innovation (November 23, 2018). Forthcoming in the Journal of Business Finance and Accounting, Available at SSRN: https://ssrn.com/abstract=2616021 or http://dx.doi.org/10.2139/ssrn.2616021