Impact of corporate social responsibility intensity on firm-specific risk and innovation: evidence from Japan

Abstract

PurposeThe purpose of this paper is to investigate investors’ perception of corporate social responsibility (CSR) and its risk-mitigating effects on firm-level innovation in Japan from 2006 to 2017. The authors examine the influence of CSR intensity on firm-specific risks, focusing on the risk-moderating effect of CSR on innovation.Design/methodology/approachThe authors conducted a simple slope analysis and panel data regressions with input and output innovation measures and idiosyncratic risk based on an asset-pricing model.FindingsThe results demonstrate that CSR intensity not only reduces firm-specific risk directly but also indirectly by negatively moderating the relationship between firm-level innovation and idiosyncratic risk.Research limitations/implicationsSignaling trust to capital markets, CSR engagements in the manufacturing industry are clearly important for innovative firms with active research and development undertakings.Practical implicationsCorporate managers should further expand their efforts to make non-financial disclosures available, considering the interactions between CSR intensity and research and development financial risk.Originality/valueIn the context of Japanese firms, this study demonstrates the interaction between CSR practices and innovation activities from the perspective of long-term management of corporate sustainability.