Does Firm Innovation Affect Corporate Social Responsibility?

Harvard Business School Working Paper, No. 16-096, February 2016.

37 Pages Posted: 12 Jul 2016

See all articles by Rui Shen

Rui Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics; Shenzhen Finance Institute

Yi Tang

Hong Kong Polytechnic University

Ying Zhang

Erasmus University Rotterdam

Date Written: Feb 9, 2016

Abstract

This study examines the relationship between firm innovation and CSR. Stakeholders’ concern over transaction-specific investments exacerbates when firms engage heavily in innovation activities. To secure stakeholders’ support, firms adopt CSR effectively as an ex ante signal of sustainability and goodwill. As CSR is endogenous to a firm’s innovation activities, we rely on an instrumental variable (IV) approach to test our hypothesis. Using a sample of 3,315 U.S. publicly-listed firms from 2001 through 2011, we find that more innovative firms also engage more in CSR activities. This effect is stronger for firms of higher risk and/or operating in a less munificent environment. Additionally, firms with higher innovation reap greater financial benefits from their CSR activities.

Keywords: corporate social responsibility, firm innovation, transaction-specific investments, firm risk, environmental munificence

Suggested Citation

Shen, Rui and Tang, Yi and Zhang, Ying, Does Firm Innovation Affect Corporate Social Responsibility? (Feb 9, 2016). Harvard Business School Working Paper, No. 16-096, February 2016., Available at SSRN: https://ssrn.com/abstract=2807438 or http://dx.doi.org/10.2139/ssrn.2807438

Rui Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

Shenzhen Finance Institute ( email )

Yi Tang

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Ying Zhang (Contact Author)

Erasmus University Rotterdam ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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