Does Doing Good Make Corporate Patents More Valuable?

Abstract

This study examines the impact of corporate social responsibility (CSR) on the quantity and economic value of innovation, finding significant positive effects. A one-standard-deviation increase in the lagged CSR score results in 6.18 more patents being granted to an average firm in a year and enhances the value of its patents by as much as 2.03% of book assets. In addition, we show that this positive effect is driven mainly by the subdimensions of community, diversity, employee relations, and environment, indicating that each subdimension of CSR performance has an individual, and varying, effect on the quantity and economic value of innovation. Further, a diversity of stakeholders, namely, creditors, customers, and employees, play important roles in determining this positive outcome. Specifically, a high level of CSR performance magnifies the degree to which innovation relaxes financing constraints, enhances the role of innovation in expanding growth options by attracting increasing numbers of customers committed to socially responsible ideals, and increases not only innovation outputs but also innovation efficiency by motivating workforces to undertake innovative practices. These factors ultimately expand a firm's options for growth by enriching the NPV of its project portfolio, thus contributing to growth in corporate value.

Keywords: value of innovation; corporate social responsibility; financing constraints; growth options; innovation efficiency; stakeholders; employees; customers; creditors

JEL Classification: D22, G30, O32