Firms’ Innovation Strategy Under the Shadow of Corporate Social Disclosure: Evidence from China.

Abstract

This paper examines how CSR disclosure impacts innovation using a sample of Chinese firms. We find that an increase in CSR disclosure leads firms to invest more in R&D investments and generate more patents. Additionally, our findings reveal that firms with high CSR disclosure nurture innovation by engaging less in short-termism activities that crowd resources for innovation. Furthermore, we uncover that CSR disclosure promotes the optimum allocation of R&D expenditure by allocating risky capital toward good investment opportunities and away from poor investment opportunity sets. In addition, we show that CSR disclosure promotes innovation through information and human capital channels.