ESG and Corporate Innovation

Abstract

This study investigates the impact of ESG disclosure on corporate innovation among US firms and shows that ESG transparency drives innovation that benefits both shareholders and stakeholders by enhancing financial strength. The positive effect is more pronounced in firms experiencing principal-agent conflicts (e.g., high CEO power or short tenure) and shareholderstakeholder conflicts (e.g., concentrated institutional ownership or high financial transparency). Our findings remain robust to alternative ESG and innovation measures, endogeneity tests, and greenwashing concerns. By emphasizing ESG disclosure's role in mitigating conflicts and aligning stakeholder interests, we demonstrate its dual signaling function as both an effective governance mechanism and an innovation catalyst.

Keywords: ESG, Disclosure, Corporate innovation JEL CLASSIFICATION: G30, G34, O30