Does corporate social responsibility matter? Evidence from firm innovation

Purpose This paper aims to investigate the impact of corporate social responsibility (CSR) engagement on firm-level innovation outcomes. It examines whether CSR enhances the quantity, quality, efficiency and novelty of innovation. The study further explores how internal governance moderates this relationship by using the corporate governance index (G-index) and the Sarbanes–Oxley Act (SOX) of 2002. By integrating insights related to stakeholder theory and innovation literature, the paper aims to clarify the strategic importance of CSR for firm-level innovation and long-term value creation. Design/methodology/approach The paper uses empirical models using firm-level panel data from Compustat, the MSCI ESG Stats database and the NBER Patent Citation database from 1992 to 2007. It combines propensity score matching and difference-in-differences estimation to address endogeneity concerns. Key measures of innovation include patent counts, citation impact and innovation novelty. Corporate governance is measured using indicators such as the G-index and the SOX of 2002. The analysis controls for firm- and year-fixed effects and standard innovation determinants to examine the effect of CSR on firm-level innovation. Findings The paper provides empirical evidence that CSR engagement is positively associated with firm-level innovation outcomes. Firms with higher CSR scores produce more patents, have more non-self citations and exhibit greater innovation efficiency and novelty. The results suggest that CSR enhances more effective R&D allocation and broader technological impact. The positive effects of CSR on innovation are stronger in firms with better internal governance. Following the SOX of 2002, firms that increased CSR engagement exhibit significant improvements in innovation output, supporting the view that CSR enhances long-term innovation performance. Originality/value This paper fulfills an identified need to examine the strategic role of CSR in firm-level innovation. It provides new empirical evidence on how CSR enhances innovation quantity, quality, efficiency and novelty. Using exogenous shock from the SOX and the internal governance measure (G-index), the study highlights the important roles of CSR and governance in long-term innovation outcomes.