Does CSR toward employees promote corporate innovation?

• CSR toward employees positively affects the quantity, the scientific quality, and the economic value of patents. • The positive impact of CSR toward employees on innovation is more substantial in high R&D intensity and growing firms. • The impact of CSR toward employees on innovation is more substantial in the presence of stronger corporate governance. • Stronger governance is required for CSR to limit the moral hazard problem that reduces firms' innovation. This study examined the impact of CSR toward employees (WS) on corporate innovation, using a sample of U.S. firms from 2002 to 2019. It provides the first evidence that better WS is beneficial for firms, resulting in a significant increase in both the quantity and the quality of patents. The positive impact of WS on innovation is more substantial in high R&D intensity and growing firms, while it is relatively weaker for mature firms. The study also explores how WS affects innovation output under various conditions and highlights the moderating role of corporate governance mechanisms, specifically the corporate governance score, board gender diversity, and auditor independence. Therefore, firms should enhance both their internal governance quality and WS to innovate.