Does Firm Innovation Affect Corporate Social Responsibility?

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.