Innovation as a Differentiation Strategy: Its Differential Substitution Effects on Corporate Social Responsibility

Abstract

The engineering management literature has long acknowledged that innovation is the most significant differentiation strategy for firms to achieve competitiveness and hence firm performance. More recently, corporate social responsibility (CSR) is recognized as another differentiation strategy which also contributes to firm performance. However, the joint performance effects of innovation and CSR have not been sufficiently investigated, particularly on the interplay between different types of innovation and CSR. This study classifies innovation into solitary and collaborative innovation as well as incremental and radical innovation to examine their differential effects. Employing a panel dataset of 2377 Chinese manufacturing firms during the period of 2010–2019, we discover that there exists an inverted U-shaped CSR–performance relationship. More importantly, we reveal that collaborative innovation has a stronger attenuating effect on the inverted U-shaped performance effect of CSR than solitary innovation. Similarly, radical innovation has a stronger attenuating effect than incremental innovation. Our research advances the innovation and CSR literature by providing novel insights regarding how different types of innovation alter the curvilinear performance effect of CSR in an emerging economy.