CSR Performance and the Economic Value of Innovation

Abstract

This study examines the impact of corporate social responsibility (CSR) on the economic value of innovation. Using the stock market reaction to patent grants as a measure of the economic value of innovation, we find that a higher level of CSR leads to a higher value of innovation. In addition, we show that different types of stakeholders, such as employees, customers, and creditors, play important roles in determining these outcomes. In particular, we document that high CSR performance magnifies the degree to which innovation relaxes financing constraints; high CSR performance magnifies the role of innovation in expanding growth options or the set of positive-NPV investment opportunities; and high CSR performance increases not only the innovation output level but also innovation efficiency. These results are consistent after a series of robustness tests.

Keywords: value of innovation, corporate social responsibility, financing constraints, growth options, innovation efficiency

JEL Classification: D22, G30, O32