The Impact of Innovation Intensity on the Relationship between CSR
and Firm Performance
Master thesis author:
Yu Ma (11730846)
Under the supervision of:
Supervisor: Hesam Fasaei
MSc. in Business Administration-strategy Track Amsterdam Business School
University of Amsterdam
Key words: CSR, firm performance, innovation intensity, developing countries
Statement of originality
This document is written by student Yu Ma who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
This study examines the moderating effect of innovation intensity on the relationship between CSR and firm performance, using a sample of 2853 observations from 640 listed companies in China from 2010 to 2016. With regression analysis, this paper prove the argument that CSR positively influences firm performance. And innovation intensity also has a positive effect on firms’ CSR performance. The more innovative firms tend to demonstrate higher CSR level. Furthermore, a regression analysis and a robustness test are used to examine the moderating effect of innovation intensity on the correlation between CSR and firm performance, and I find that the positive impact of CSR on firm performance is more significant for more innovative firms than the less innovative ones. The value created by CSR is different for firms with high innovation intensity and firms with low innovation intensity, which is consistent with my prediction. Hence, all threes hypotheses have been proved in this study. This paper sheds further light on the relationship between CSR and firm performance, and introduces a moderator variable innovation intensity to deeper understand the impact of CSR. Moreover, it also enriches the body the research in developing countries by collecting data from China.
Content
1. Introduction... 1
2. Literature and hypotheses development...5
2.1 Corporate social responsibility (CSR)...5
2.2 CSR and firm performance...7
2.3 CSR and innovation...9
2.4 Literature gap and research question...10
2.5 Hypothesis...14
3. Methodology... 19
3.1 Data and sample... 19
3.2 Independent variable (CSR)... 20
3.3 Dependent variable (Firm Performance)...21
3.4 Moderating variable (Innovation Intensity)... 21
3.5 Control variables... 22 4. Results... 23 4.1 Descriptive statistics...23 4.2 Correlation analysis...25 4.3 Regression analysis... 26 4.4 Robustness test... 33 5. Discussion... 34 5.1 Major findings... 34
5.2 Contributions of the study... 37
5.3 Limitations and future research...39
6. Conclusion...42
7. References... 43
1. Introduction
A considerable amount of research concerning the correlations between corporate social responsibility (CSR) and firm performance has been done over the past decades. Not only the direct relationship between these two variables has been involved in the discussion (e. g. Abu Bakar & Ameer, 2011; Oeyono, Samy, & Bampton, 2011) but also the indirect one which regards reputation, customer
satisfaction, stakeholder relationship and competitive advantage as main outcomes of CSR ( e.g. Walsh & Beatty, 2007;Mulki & Jaramillo, 2011 ).
However, the findings are rather mixed and controversial. For example, a number of previous findings (e.g. Pil & Rothenberg 2003; Van Beurden & Gössling, 2008; Oeyono, Samy, & Bampton, 2011; Cheng et al. 2014; Mishra 2017 ) show a positive CSR is positively related to firm performance. Orlitzky et al.’s (2003) further prove this argument by examining 52 previous studies about the direct relationship between CSR and firm performance, demonstrating that companies with high CSR have better economic results. The survey conducted by Rettab et al. (2009) also indicates that CSR positively affect company performance in three dimensions: monetary
performance, personnel commitment and corporate integrity. While, on the other side, some scholars suggest a negative or no correlation between CSR and firm
CSR have no capacity to create firm value, and the additional expenditure in CSR can even destroy firms’ value ( Frieman, 1970; Ullman, 1985). Later, by investigating manufacture industry in Brazil, Freire et al. further prove such idea and demonstrate the example about CSR damaged firm value in Brazil.
Most of prior researches have more attention on developed countries, much less is done in emerging countries ( Li et.al.,2010 ) while in these years emerging markets have received more and more attention because of their rapid development ( Baughn et al., 2007; Qu, 2007 ). Some up-to-dated researches hold the view that Corporate social responsibility depends on different national backgrounds and can be adopted in different environments and economies ( Moon & Matten, 2004). Thus the results found in developed countries with data from European and US may be inapplicable for emerging market contexts ( Fox, 2004). Accordingly, further research needs to be done in emerging markets considering the heterogeneity of national context ( Li et al.,2010 ).
In addition, although substantial researched has been done on the correlations of CSR and firm performance, considering the inconclusive findings, Branco and Rodigues (2006) suggest to apply mediators and moderators. Most of these studies which investigate the impact of CSR on firm performance are on industry-level ( e.g. Saeidi, 2015; Rhou, 2016) ignoring firm heterogeneity. Firms are different in firm size, innovation ability, firm’s main goal and culture which may lead to different
results towards CSR and firm performance relations ( e.g. Mothe & Bocquet, 2010; Mishra, 2017).
Among the studies, Mishra’s research which is conducted in US argues that firms with more successful innovations can gain more profit from CSR investment（2017）. CSR performance adds to firms’ intangible capital by enhancing reputation and
differentiation and mitigating the severity of damage ( Boehe and Cruz 2010 ). For innovative firms reputational capital is more valuable as ( i ) they are more likely to suffer damages from product / process failure and ( ii ) need to signal their high quality and trustworthy to potential customers ( Mishra, 2017 ). Moreover, high CSR performance can reduce information asymmetry and capital restraints, which is crucial for innovative firms to gain more profits ( Ghoul et al., 2011). Consequently, the value created by CSR for more innovative firms and less innovative firms is different.
Based on Mishra’s (2017) research this study sheds further light on these controversial issues by examining the relationship between CSR performance and firm value in emerging markets taking into account the moderating effect of innovation intensity. Here, the innovation intensity refers to numbers of patent applications, considering the successful innovation effort should be registered, which is consist with Mishra’s (2017) researches. By answering the question whether firms with high innovation intensity generate more value from CSR than firms with low innovation intensity this paper makes three contributions to existing literature. First, it
examines the theory on relationship between CSR and firm performance by taking into account the moderate effect of innovation intensity, hence it contributes to a deeper understanding of the influence of CSR on firm performance. At the same time, it further examines Mirsha’s (2017) and McWilliams & Siegel’s (2001) researches in a different context: China and find out if the results from developed countries can be applied to a developing country. Accordingly, it enriches the body of researches on CSR and firm performance in emerging markets by collecting the data from China, one of the most rapidly growing emerging markets. With the previous researches in developed world ( e.g. Padgett & Galan 2010) a country-level analysis and further researches can be conducted, and a more generalize results can be gained. Third, it helps MNEs recognize the different values can be gained by CSR in emerging markets according to their firms’ characteristic. Address the problem that how does innovation intensity influence profits from CSR. Thus help them avoid the
unnecessary costs of CSR investment and build a better CSR strategy.
This paper use a sample of 2,853 observations from 640 listed companies in China, and regression models are used to test the hypothesis. The structure of the following sections is organized as follows: First, the empirical studies will be reviewed to overview the conditions of existing studies on this issue. Later, the research gap and the research question will be defined, and accordingly, three
hypotheses will be raised. Next, the following sections will explain the construction of variables and give out the results. Finally, the discussion and conclusion part will
explain the major finds and give direction to future research.
2. Literature and hypotheses development
2.1 Corporate social responsibility (CSR)
There is a growing research on CSR in recent years. A couple of main aspects of CSR have been studied by different scholars, such as its definition, conceptualization, components, information disclosure and the possible concern between CSR and firm value. In practice, firms also pay more attention to CSR performance ( Dahlsrud, 2008 ). Such action is concerned as a social stress response, relative to stakeholders who are more environmentally sensitive require more sustainable and
environmentally friendly products and services (Van Beurden & Gossling, 2008). Even though, a large body of research on CSR has been done during the past years, there is still no clearly and unified definition ( Wood, 2010). Most of the studies use the definition of CSR from the Commission of the European Communities in 2001 (‘A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’ as found in (Dahlsrud, 2008: p. 7)) and from the World Business Council for Sustainable Development in 1999 (‘The commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life’ as found in (Dahlsrud, 2008: p. 7)). Some scholars ( e. g. Van Beurden & Gössling, 2008; Orlitzky, Siegel,&
Waldman, 2011 ) believe that the mixed and unclear definitions contribute to the difficulties to conduct empirical studies. However, one thing that is highly accepted among all these conceptions is that firms should integrate environmental concerns and protect the benefit of the whole society in their operations (Gossling & Vocht, 2007; Dahlsrud , 2008). In a survey conducted in Hong Kong, the highest ranked factors considered by stakeholders are environment, human resource, healthy, safety, and governance (Welford et al., 2007).
Academic scholars also notified that the research of CSR should be based on the context where it is practiced, as it may change according to its environment which causing different consequences (Halme et al., 2009). Doh and Guay (2006) examined CSR practice in North American and European, and compared how different
institutional environments and policies in Europe and North America influence the expectations of CSR. They found the differences in policy and institutional conditions are important factors which affect NGOs’ and governments’ preferences towards CSR. On the other hand, instead of using samples from the two most developed regions, Dobers and Halme (2009) gave attention to CSR implementation in developing markets: Africa and South America. The finds indicated that the CSR issues in these areas are still not taken seriously, and it is urgent to call for efforts of NGOs,
governments, private sectors to promote and monitor CSR programs (Dobers & Halme, 2009).
2.2 CSR and firm performance
One line of investigation on CSR is devoted to its relationship with firm
performance, using both market and accounting measures (Margolis and Walsh, 2003). In the literatures CSR has been regard as a key factor in wealth generation and
numerous of scholars are dedicated in finding a universal relation between CSR and firm performance (e.g. Lin, Yang, & Liou, 2009; Rettab, Brik, &Mellahi, 2009; Galbreath & Shum, 2012). Nevertheless, the findings obtained so far are rather mixed and controversial. Among the works reviewed by Margolis & Walsh (2001) and Van Beurden and Gossling (2008), 53% and 68% of studies illustrated positive connection in two studies respectively, while others show a different pattern ( e.g. Aupperle, Carroll, & Hatfield, 1985; McWilliams & Siegel 2001; Renneboog et al. 2008; Freire et. al., 2011). For example, Rettab et al.(2009) collected data from 280 enterprise in UAE to explore the relationship between CSR and firm performance. The result suggested that CSR positively affect firm performance on all three determinants: monetary performance, personnel commitment, and corporate integrity. This positive correction between CSR and firm performance was also proven by Galbreath (2008) using data from Australian companies. Later, with a sample from Iranian
manufacturing and consumer industries, Saeidi et. al. (2015) found that the relationship between CSR and firm performance is completely mediated, and the positive influence of CSR on firm performance is mediated by reputation and competitive advantage. Some studies also found that customers prefer products and
services from environment-friendly firms, and willing to pay higher price for them (e.g., McWilliams and Siegel, 2001). Additionally, Luo and Bhattacharya (2006) indicated that in large companies CSR is one of main drivers of customer satisfaction, in other word, creates market value for these companies.
However, other scholars recognized the cost of CSR and argued that CSR practices are value destroying (Renneboog et al. 2008; Freire et. al., 2011). The investments and expenditures devoted to CSR, which is not associated with main objective of firm means diversions of resources from main purpose of the firm and cause extra costs (Freire, 2011).One of these researches is the study of Freire et al. (2011) which was conducted in the conception of emerging market. Data was
collected in Brazil and the results indicated a negative relationship between CSR and firm performance.
Reviewing the previous studies, the majority of them use data from developed countries, such as Europe and US. Regarding the scare studies and mixed results, some scholars indicated more study need to be done in developing countries ( Dobers, 2009; Freire et al., 2011; Sofian et al., 2015 ) .
2.3 CSR and innovation
According to previous literatures, CSR practices can give a positive influence on stakeholder relationship and some certain management strategies, one of which is innovation (Trebucq & Evraert, 2008). Based on resource-based view, firm value is achieved by using both of tangible (e.g., physical assets and capital) and intangible (e.g., reputation, intellectual property) resources. Innovation creates intangible resources for companies and CSR increases such capital by enhancing reputation. A good reputation is a valuable resource for innovative companies to offset the risk brought by innovation (Minor, 2010). Whenever there is a product failure or black swans, a CSR-enhanced reputation can reduce the damages and effectively provide insurance. Similarly, firms can also set ex ante barriers to differentiate themselves by enhancing their CSR reputation, thereby create competitive advantages (Boehe & Cruz, 2010). Mishra (2017) indicated companies planning to launch new products need to develop reputation capital because (i) there is a greater risk of damage caused by product/process failures and (ii) more need to inform their quality and seek
differentiation. By establishing its CSR reputation, the firm signals that it has no intention of compromising on these fronts that are highly concerned by customers and the main society, such as the reliability and quality of its services and products. In a similar pattern, Fishman et al. (2006) indicated that by showing good CSR practice, a company implicitly advises a minimize tolerant of unethical behaviour. Furthermore, CSR practices help a firm strengthen its relationship with its existing stakeholders and
cultivate new ones. Firms with broader relationship networks enjoy greater access to stakeholders’ resources including capital which is extremely important for innovative firms(Jansen et al., 2006). Macgregor and Fontrodona (2008) also provided further
support by examining the relationship between CSR and innovation in European firms, putting forward innovation-drive CSR and CSR-drive innovation. This kind of
mutually reinforcing relationship has also been found in the study of Luo and Du (2014).
2.4 Literature gap and research question
The existing literature has analyzed both the correlations between CSR and firm performance, and between CSR and innovation, but seldom linked them together. The correlation between CSR and firm performance has investigated by many researchers but the results are various. Overall, the majority of studies found CSR positively influence firm performance. (e.g. Pil & Rothenberg 2003; Van Beurden & Gössling, 2008; Oeyono, Samy, & Bampton, 2011; Aktas et al. 2011; Cheng et al. 2014; Mishra 2017 ). Some scholars even found on one hand higher CSR leads to higher value creation, on the other hand, preeminent firm performance allows corporations to go further in CSR (e.g., Waddock & Graves, 1997). According to the stakeholder theory, engaging in CSR practices suggests firms not only meet their shareholders’ own need but also create value for other stakeholders which do not directly involved in CSR
aspect, including their communities, employees, customers and investors (Epstein & Roy, 2001). With superior CSR practices, firms can maintain deeper relationship with existing stakeholders and build broader relationship with new stakeholders, in turn gain more support from stakeholder groups (Fombrun et al., 2000). Furthermore, CSR projects help enterprises accumulated superior reputation, and enterprises can attract more customers, employees and investors, so as to gain competitive advantages (Godfrey, 2005).
For another, some researches reported negative relationship or negligible
relationship between CSR and firm performance. For example, a negative correlation was found by Vance (1975), suggesting higher CSR results in lower firm performance, which is because of the extra costs from CSR. Later, Wang et al. (2008) suggested that the correlation between CSR and firm performance is inverted U-shaped, which means the impact of CSR on firm performance goes up first but after a maximum value it goes down soon.
Regarding the controversial findings, a couple scholars suggest some intervening and interacting factors should be considered, which may influence the link of CSR and firm performance and were omitted by many studies (Alafi & Hasoneh, 2012; Galbreath & Shum, 2012). Orlitzky et al. (2003) also proved that the relationship between CSR and firm performance relies on the measurement of each items and the presence of moderators. Therefore, a third factor which can significantly influence the
relationship between CSR and firm performance should be introduced in future studies.
Many studies regard innovation as a main factor which can influence CSR practices (e.g. Boehe & Cruz, 2010; Mishra, 2017). Luo and Du (2014) examined the relationship between CSR and innovation from knowledge-based view, and indicated that CSR practices help a firm enhance its relationship with stakeholders, facilitating the absorption of external knowledge from stakeholders, in turn, firms transfer these external knowledge into internal knowledge and promote innovation. Furthermore, they also found firms with higher R&D investment tend to have better CSR practices and the above relationships are more significant in more competitive markets. The mutually reinforcing relationship between CSR and innovation has also been proved by Macgregor and Fontrodona ( 2008), who conducted a 15-month study and
examined 60 SMEs in Europe. They argued that the diffusion of CSR should be based on the diffusion of innovation and the relationship between CSR and innovation can be described as a virtuous circle. The existing studies mainly focus on the direct relationship between CSR and innovation, and how they affect each other, rarely regarding innovation as a moderator which can influence the effect of CSR on firm performance. On exception is the study of Mishra (2017), focusing on if innovative companies devote higher CSR post-innovation. The study demonstrated that the reputational capital accumulated by CSR practices can reduce the severity of damages caused by product and process failure, which is more valuable for innovative firms.
Moreover, CSR can create an image which signals reliability and trustworthy, and help firms differentiation their products, which can build an ex ante barrier for new products before they are launched to the market (Boehe & Cruz, 2010). Besides the research of Mishra (2017), more general relationship between these three factors should be studied.
Additionally, the majority of existing studies are completed using data from Europe and US (Dowell et al., 2000). The concentration of the studies in developed countries is a main factor which influences the generalization of the findings and also a
motivator to further studies in developing countries. Some up-to-dated researches hold the view that Corporate social responsibility depends on different national backgrounds and can be adopted in different environments and economies( Moon & Matten, 2004; Midttun, Gautesen &Gjolberg, 2006 ). As Dobers and Halme (2009) mentioned, the institutional and economic conditions of firms operating counties can interfere in their CSR performance. Generally, firms in emerging markets adapt CSR less than firms in developed countries ( Welford, 2004), and the awareness of CSR in developing countries is also lower than that in global north countries ( Arli &
Lasmono, 2010 ). Whereupon, the results from research based on global north are not applicable to emerging markets and new research needs to be done in new markets.
Considering the scarcity of researches on CSR in developing countries, and researches on the moderate effect of innovation intensity on the relationship between
CSR and firm performance, this article aims to fill these gaps. I seek to shed further light on these issues by using samples from China, one the most rapid growing and biggest emerging markets, and introduce innovation intensity as a moderator which may influence the correlation between CSR and firm performance. In China, the adaption and monitor of CSR practices are still immature and incomplete, which may leads to different results compared with those of developed countries. This study aims to examine the correlation between CSR and firm performance in China, and identify if innovation intensity has moderate effects on their relationship and how it influence this relationship. Thus, the research question of this article is:
How dose innovation intensity affect the relationship between CSR and firm performance in one of the emerging markets – China.
2.5 Hypothesis
Pursuing CSR practices means a corporation needs to meet the expectation of all stakeholders, including employees, customers, communities, investors rather than only consider its own profits for stockholders ((Margolis and Walsh, 2003). In this case, CSR creates valuable resources for firms – the broader and deeper relationships with stakeholders (Epstein & Roy, 2001). With the support of stakeholder groups, firms can achieve competitive advantages. Such as in labor market, good reputation accumulated by CSR practices can attract more qualified employees. Besides labor
problems, firms with CSR based reputation are more popular in among customers and they tend to be desired to pay a above normal price for their products and service (e.g., McWilliams and Siegel, 2001). CSR investment is not only a strategic device for accumulating reputational capital, but also releases capital constraints by reducing information asymmetry and achieving transparency (Cheng et al. 2014). Indeed, for banks and other institutional investors, firms’ social performance is one of the main factors to be considered in their investment decisions (Spicer, 1978). Therefore, engaging in superior CSR practice can improve firms’ access to capital resources. Additionally, a high level of CSR permits a firm to have fewer legitimate problems and experience lower financial risk because of more stable and deeper relations with banks, communities and the government (Mcguire, 1988). According to the resource based view, firms who own valuable and rare resources can obtain competitive advantages and can expect to gain superior profits than others, and firms whose rare and valuable assets are also difficult to imitate and can’t be transferred easily may record sustainable competitive advantages and sustained superior financial profits. All these kind of reputations, relationships and stakeholder preference mentioned above can form competitive advantages and lead to financial profits.
Although China is a developing country and the CSR practices are not mature enough, according to the theories above and previous studies, I predicted that a results which is similar to that of developed countries like US. and western European
H1. CSR positively influences firm performance.
Innovation refers to the new combinations of resources, which can add value for the entity and meanwhile bring profits for its stakeholder (Baldwin and Curley, 2007). However, in innovation process there are full of risks, such as product/process failure and new products marketing failure. CSR practice which can accumulate reputational capitals and build stable relationships with various stakeholders is an ideal cushion which can offset part of the damage caused by unsuccessful innovation (Minor, 2010). Based on RBV and knowledge based view, engaging in CSR practices can bring a firm with valuable resources and external knowledge which are crucial to innovative firms, in turn, the more innovative firms invest more in CSR practices (Luo & Du, 2015; Mishra, 2017). For example, engaging in high level of CSR indicates a good citizenship and little tolerance for the things which may damage stakeholders’ profits, consequently, enhance a firm’s reputation, foster trustworthiness, and improve
company image and customer perception, which contribute to intangible resources for the firm (Park et. al., 2014). For innovative firms, before the new products are
launched to the market and at the beginning of launch, customers have no idea about the product and what may influence their choices is their reception of firm image. The customers rely on the information of the firms’ history performance and reliability level to make their consumption decisions (Mishra, 2017). Next, innovative
companies need adequate access to capital for R&D investment and launching fees. CSR program can improve transparency and stakeholder engagements, as a result,
banks and investors have more knowledge about the company and more easily to make invest decisions (Andriof and Waddock, 2002).
Considering knowledge based view, the concrete relationship between stakeholders and firms can encourage stakeholders to share information and knowledge with the firm, thus increase the pool of external knowledge (Jansen et al. 2006). Stakeholders always possess unique knowledge which can complement firms’ internal knowledge and guide their innovation. Such as, customers posses the knowledge about market preference and the majority’s needs, which is essential to firms’ innovation direction; governments and NGOs provide superior social and environmental knowledge (Porter & Kramer, 2011), which can create value to firms and avoid damage caused by legitimate problems. As firms with more frequent innovation have greater desire for reputation, capital resources and external knowledge, they may demonstrate a higher level of CSR. Thus, it is hypothesized that:
H2. Innovation intensity positively influences CSR level.
By using a sample of American firms from 1991 to 2006, Mishra (2017) found that for more frequent innovator, the value created by CSR is much higher than that for less frequent innovators. As mentioned above, firms with high CSR performance can decrease information asymmetry and capital constraints, which are both important for innovative firms. Compared with others innovative firms need (i) more access to capital resources for R&D investment and marketing, (ii) and a good position in labor
market to broader their talent pools and make sure the quality of employees as well as (iii) superior reputation to attract massive customers. CSR practices achieve all of these by building concrete relationships with stakeholders, absorbing external knowledge, and accumulating reputational capital (Andriof and Waddock, 2002; Jansen et al. 2006). The CSR-enhanced reputation signals good quality and reliability to customers, which is essential to innovative firms as they launch new products and service more frequently than others and what customers use to judge consumption decisions towards these unfamiliar products is their perception of firms’ image (McWilliams & Siegel, 2001). In addition, innovative firms who are more likely to suffer damage from innovation failure use CSR to build reputations and generate differentiation to avoid post-innovation damage and build ex ante competitive advantage ( Mishra, 2017 ). Consequently, CSR performance is more valuable for more innovative firms and the profit generated by CSR investment is higher for firms with high innovation intensity than their counterparts, which is also consistent with the findings of Mishra (2017) and Padgett & Galan (2010). In this case, is it more beneficial for more innovative firms to demonstrate higher level of CSR. The final hypothesis is:
H3. Firms with more frequent innovation generate more value from CSR practices than their counterparts.
3. Methodology
This session explains the choices of variables and the research design of this paper. First the sampling strategy will be demonstrated, including the reasons why the data are chosen and sources of the chosen data. Next, the following sections discuss the measurement of the dependent variable, independent variable and control variables.
3.1 Data and sample
This study examines a sample of listed companies in China from 2010 to 2016, including both state-owned companies and non state-owned companies. The financial data and innovation data are from CSMAR, and the information about CSR is from RKS CSR rankings. when the sample is selected, the following processes are carried out: (1) eliminate listed companies that issue both B shares and H shares, because the information disclosure of A shares is affected by B shares and H shares; (2) ST and PT stocks were excluded, because extreme values would affect the statistical results; (3) listed companies in the financial and insurance industries are eliminated, as financial listed companies have particularities due to their different salary assessment and performance evaluation; (4) eliminate samples with missing data during the
obtained from 640 listed companies. In this paper, software EXCEL was used for data preprocessing and software STATA was used for statistical analysis.
3.2 Independent variable (CSR)
In this paper, RKS CSR rating is used to measure CSR performance, which is in line with the study of Zhang et al. (2014). RKS rating is based on three indictors: Macrocosm(integrity), Content(Content) and Technique(Technique), and sets up primary and secondary indexes to give comprehensive measurement to firms’ CSR report. Among them, the integrity (M value) represents whether the overall structure framework of the social responsibility report is normative or not, the content (C value) represents whether the social responsibility report is informative or not, and the
technical (T value) represents whether the preparation technology of the social responsibility report is mature. The sum of these three indictors represents the quality of social responsibility reports. The rating adopts the structural expert scoring method with a full score of 100, in which the weight of integrity (M value) and content (C value) are both 40%, the full score of each one is 40, the technical (T value) is 20% and the full score is 20. This study use RKS CSR score/100 (csr) to represent firms’ CSR performance. RKS rating starts from 2009, however, our CSR data is collected since 2010, due to only a few firms gave out CSR report at the beginning year of RKS CSR rating.
3.3 Dependent variable (Firm Performance)
To give out a concrete result, both ROA and ROE are used to measure firm performance using data from CSMAR. ROA is the return on total assets and calculated as net profit divided by year-end assets; ROE is the return on equity and calculated as net profit divided by owner's equity. Considering the lag effect of innovation and CSR on firms’ financial performance ( Luo & Du, 2014), in the following regression analysis, firm performance are measured by ROA and ROE in the following year after patent application and CSR practice, which is consistent with previous studies. Moreover, in robustness test, ROA and ROE are two years after innovation and CSR practice.
3.4 Moderating variable (Innovation Intensity)
This paper collects data of innovation intensity from CSMAR database. The
CSMAR r&d and innovation database has collected the patent information and R&D information of listed companies in Shanghai stock exchange and shenzhen stock exchange, and extracted financial information from the announcements of listed companies. It gives detail information on patent type, application date, authorization date, patent holder, patent term, R&D investment, number of R&D personnel and
some other fields. Mishra (2017) suggests that the number of patent applications is an indicator of successful innovation and according to Griliches et al. (1987) the time when the innovation occurs is closely to its patent application year but not the patent granted year. The result from empirical studies show that 25% of the patent granted process is longer than three years and 1% even lasts for over seven years (Mishra, 2017). In this paper, the natural log of patent application number is used to measure innovation intensity. In line with previous studies (e.g. Mishra, 2017) the average number of patent applications in each industry and year is calculated and firms’ patent application number is regard as gg. Firms with patent application number which is higher than the industry yearly average number are regard as more innovative firms, the others are less innovative ones. When gg is greater than the industry yearly average number, it is defined as 1, and when it is smaller than the industry yearly average number, it is defined as 0. Finally, there are 434 more innovative firms, constituting 15.21% of the total sample; and 2419 less innovative ones, constituting 15.21% of the total sample.
3.5 Control variables
In line with the previous literature, firm size is controlled in this paper as larger firms are expected to demonstrate higher CSR performance and influence the result. The natural log of total assets at the end of each year is used to measure firm size.
Some other variables which may influence the result are also controlled, including debtasset ratio (DAR:Liabilities/assets), asset growth rate (GRO: (This year's assets -last year's assets) / -last year's assets) and turnover rate (TURN: Sales revenue/assets).
4. Results
In this section, the results of analysis will be explained. It begins with a
descriptive test of dependent, independent, moderating and control variables, giving detail information and characteristics of the sample. Then a correlation analysis is conducted and the main correlations will be illustrated. In the following part, several regression analyses will be performed to test three hypotheses and it will end up with a robustness test.
4.1 Descriptive statistics
Table 1 provides detailed information about the final sample. Excluding missing data, finally there are 2853 observations from 640 listed Chinese companies, and observed period is from 2010 to 2016. From the descriptive table we can see the maximum CSR score in this sample is 0.706, and the minimum CSR score is 0.216, which indicates a small difference in CSR adaption in China. Meanwhile, the median
of CSR score in this sample is lower than 0.5 (0.358 in fact), further proving the low CSR performance in China. Besides, the average ROA level of the next year is 0.0387, and the average ROE of the next year is 0.0742. It shows that the overall performance of China's listed companies is pretty well and the profitability is good.Based on industry yearly average patent application numbers, innovative firms are defined as firms with innovation applications higher than industry average ones, and
non-innovative firms are those with innovation applications lower than industry average ones. Finally, there are 434 more innovative firms, constituting 15.21% of the total sample; and 2419 less innovative ones, constituting 15.21% of the total sample. From table 1, we can find the maximum value of innovation applications is 6.221, and the minimum value is 0, however the mean is 1.847, and the median is even lower than the mean, which indicates the majority value in this sample is pretty low, only very few of them are extremely high.
Table 1 Descriptive statistics
variable N mean sd p50 min max
FROA1 2853 0.0387 0.0100 0.0330 -0.107 0.168 FROE2 2853 0.0742 0.0999 0.0748 -0.270 0.282 csr 2853 0.384 0.112 0.358 0.216 0.706 patent 2853 51.50 252.4 4 0 5003 lnpa 2853 1.847 1.810 1.609 0 6.221 SIZE 2853 22.89 1.382 22.73 20.45 26.31 DAR 2853 0.476 0.197 0.489 0.0829 0.833 GRO 2853 0.126 0.256 0.0952 -0.327 1.017 TURN 2853 0.688 0.406 0.598 0.150 2.064
4.2 Correlation analysis
In this part, the correlations between dependent, independent, moderating and control variables will be explained. Firstly, we examine the corrections between control variables and the other variables. From table 2, it can be observed that all the control variables have significant effect on the other variables. Firm size is positively related to both innovation intensity and ROE, with r=0.108, p<0.01 and r=0.067, p<0.01 respectively, indicating the larger firm is, the higher innovation intensity and ROE it has. And the positive correlation between firm size and CSR is even stronger than the above two, with r=0.454, p<0.01, which suggest larger firms tend to have higher CSR performance. However, both firm size and debt-to-asset ratio have
negative correlation with ROA, r = -0.076, p<0.01 and r = -0.373, p<0.01 respectively, and the negative relationship between debt-asset ratio and ROA is stronger than that between firm size and ROA. Furthermore, in contract to the effect of debt-to-asset ratio on ROA and ROE (both negative), asset growth rate and turnover rate both significantly facilitate ROA and ROE, and the positive effects of asset growth rate on ROA and ROE are both stronger than those of turnover rate. Additionally, a weak positive correlation between turnover rate and innovation applications is found (r=0.067, p<0.01).
As for the correlations among dependent, independent and moderating variables, the most of these factors are positively related. CSR has a significantly positive
relationship with ROE, with r=0.067, p<0.01, whereas its relationship with ROA is not significant. Similarly, innovation applications show a weak positive correlation with CSR (r=0.096, p<0.01), but its correlation with ROA is not that significant and needs further test. Meanwhile, a strong correlation between ROE AND ROA is found in this sample, with r=0.904, p<0.01. The full correlations of the variables are stated in table 2.
Table 2 Correlation analysis
FROA1 FROE2 csr lnpa SIZE DAR GRO TURN
FROA1 1 FROE2 0.904*** 1 csr 0.0270 0.067*** 1 lnpa 0.0140 0.032* 0.096*** 1 SIZE -0.076*** 0.067*** 0.454*** 0.108*** 1 DAR -0.373*** -0.137*** 0.144*** 0.062*** 0.553*** 1 GRO 0.222*** 0.255*** -0.014*** 0.0250 -0.0150 -0.00600 1 TURN 0.123*** 0.155*** 0.035* 0.067*** 0.088*** 0.132*** 0.085*** 1
***. Correlation is significant at the 0.01 level (2-tailed). **. Correlation is significant at the 0.05 level (2-tailed) *. Correlation is significant at the 0.1 level (2-tailed)
4.3 Regression analysis
Table 1 and table 2 have showed some basic information about the sample and the correlations among them. In the following models, model 1 and model 2 are used to explain the relationship between dependent variables (ROA and ROE) and
that is the correlation between innovation intensity and CSR. Model 4 and model 5 are used to explain the moderating effect of innovation intensity on ROA and ROE respectively, and test hypothesis 3. And finally a robustness test is performed.
Following the previous studies, CSR practice can build superior reputation, broader relationship and create competitive advantages for firms, thus leads to value creation (Saeidi, 2015). While, the value created by CSR performance has lag effect, so in model 1,2,3,4 FROA and FROE represent ROA and ROE for the next year after CSR practices. The model used to test hypothesis one is as follow:
1 2 3 4 5
performance= + csr+ SIZE+ DAR+ GRO+ TURN+
In this model refers to the intercept term, refers to the random error term. Performance refers to the firm performance in the next year and represented as FROA and FROA. When 10, it indicates that the higher the social responsibility score, the better the firm performance. It can be observed from model 1 that the variable CSR is significant at the 5% significance level and the coefficient is positive,
indicating that the increase in CSR score will lead to increase in total assets return rate in the next year. More specifically, for each unit increase in CSR score, FROA level increases by 0.0158. From the performance of the control variables, the firm size is significant at the 1% significance level, and the coefficient is positive, which means that when the firm size increases, the rate of return on total assets in the next phase
increases. Similarly, excluding asset-liability ratio, the increase of the other two
control variables (including growth rate of total assets and turnover rate of total assets) can all lead to better performance in the next year, and are significant at the 1%
significance level, while asset-liability ratio and the rate of return on total assets in the next year is negatively related. In model 2, it shows that the coefficient of variable CSR is positive and it is significant at the significance level of 10%, indicating that CSR and ROE in the next year is positively related, the increase of CSR score will increase the ROE of the next year. More specifically, for each increase in CSR score, FROE levels increased by 0.0348. That is to say, when we use the return on total assets and return on equity in the next phase to represent firm performance, we can come to the same conclusion, that is the higher the CSR score, the better the firm performance, thus hypothesis 1 is supported. These findings shed important light on the relationship between CSR and firm performance, proving the results of empirical studies which also suggest a positive effect of CSR on firm performance (Oeyono, Samy, & Bampton, 2011; Cheng et al. 2014; Mishra 2017 ). The results of analysis are presented in table 3.
Table 3. Relationships between CSR and firm performance
(1) (2)
m1 m2
VARIABLES FROA FROE
csr 0.0158** 0.0348* (1.989) (1.918) SIZE 0.00638*** 0.0140*** (7.654) (8.274) DAR -0.126*** -0.137*** (-21.20) (-12.74) GRO 0.0384*** 0.0894*** (10.96) (12.71) TURN 0.0186*** 0.0367*** (8.443) (8.422) Constant -0.0592*** -0.203*** (-3.568) (-5.995) Observations 2,853 2,853 R-squared 0.244 0.148
Robust t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1
After proving the relationship between CSR and firm performance, model 3 is used to further examine how innovation intensity influences CSR level and presented as follow:
1 2 3 4 5
csr= + lnpa+ SIZE+ DAR+ GRO+ TURN+
In this model refers to the intercept term, refers to the random error term. Innovation intensity is measures by the nature log the innovation applications. When
1 0
significance level of 1% and the coefficient is positive, indicating that CSR score increases when innovation intensity increases. According to Mishra (2017), firms with higher innovation intensity need more access to capital resources for new product development and commercialization in the market, hence they are more desire to obtain a superior CSR reputation and tend to have higher level of CSR performance. This research confirms this argument by showing a positive coefficient of innovation intensity. Specifically, for each 1% increase in the number of patent applications, the CSR score increased by 0.00301%. Thus, hypothesis 2 is proved, that is innovation intensity positively influence CSR practices. Table 4 shows the detailed results.
Table 4. Relationships between CSR and innovation intensity
(1) m3 VARIABLES csr lnpa 0.00301*** (2.733) SIZE 0.0432*** (24.66) DAR -0.0881*** (-8.312) GRO -0.0216*** (-2.993) TURN 0.00272 (0.562) Constant -0.568*** (-15.39) Observations 2,853 R-squared 0.228
Robust t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1
To test the moderating effect of innovation intensity, the average number of patent applications in each industry and year is calculated and firms’ patent
application number is regard as gg. Firms with patent application number which is higher than the industry yearly average number are regard as more innovative firms, the others are less innovative ones. When gg is greater than the industry yearly average number, it is defined as 1, and when it is smaller than the industry yearly average number, it is defined as 0. Finally, there are 434 more innovative firms, constituting 15.21% of the total sample; and 2419 less innovative ones, constituting 15.21% of the total sample. Considering the lag between CSR, innovation and firms’ financial performance, FROA and FROE here is the next year data after innovation and CSR. As can be seen from model4, when the innovation ability is high, the effect of adding one unit of CSR on the rate of return of total assets in the next phase is 0.0254+0.0562=0.0816 units added. When the innovation ability is low, one unit of CSR increase will lead to 0.0254 units increase in the rate of return of total assets in the next year, and the interaction term csr_gg was significant at the significance level of 1%. The result indicates that the stronger the innovation ability, the more
significant the CSR promoting the rate of return on total assets in the next phase. Similarly, from model 5 we can find, when the innovation ability is high, the increase of one unit of CSR lead to 0.0529+0.110=0.1629 units increase in ROE; when the innovation ability is low, the increase of one unit of CSR lead to 0.0529 units increase in ROE, and the interaction term csr_gg was significant at the significance level of 1%. This result also suggests that the higher the innovation intensity, the more
significant the CSR's promoting effect on ROE in the next phase. That is to say, when we use the return on total assets of the next period and the return on equity of the next period as the representatives of performance, we can come to the same conclusion that CSR practice can create more value to firms with higher innovation intensity than their counterparts. Hence, hypothesis 3 is supported. The results are showed in table 5.
Table 5. Moderating effect of innovation intensity
(1) (2)
m4 m5
VARIABLES FROA FROE
csr 0.0254*** 0.0529*** (2.897) (2.770) gg 0.0294*** 0.0621*** (4.085) (3.869) csr_gg 0.0562*** 0.110*** (3.672) (3.159) SIZE 0.00606*** 0.0131*** (7.301) (7.150) DAR -0.126*** -0.136*** (-21.19) (-10.83) GRO 0.0381*** 0.0887*** (10.92) (11.44) TURN 0.0180*** 0.0355*** (8.227) (7.456) Constant -0.0565*** -0.193*** (-3.403) (-5.227) Observations 2,853 2,853 R-squared 0.248 0.154
Robust t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1
4.4 Robustness test
In order to test whether it is appropriate for this paper to use the next stage firm performance instead of the current stage firm performance as the representative of firm performance, this paper will change the explained variable (ROA and ROE) from one year after innovation and CSR to two years after innovation and CSR. From table 6, when ROA and ROE are changed to two years after innovation and CSR, the impact of CSR on firm performance is still positive. To be specific, one unit increase in CSR leads to 0.0239 units increase in FFROA and 0.0495 units increase in FFROE, and they are significant at the significance level of 1% and 5% respectively. Similarly, the effect of innovation intensity on CSR is still positive, and significant at 5%. Considering the moderating effect of innovation intensity on the relationship between CSR and firm performance (FFROA and FFROE), the coefficients of csr, gg and csr-gg are all positive and significant at 1% significance level, which is consistent with the results in model 4 and model 5. Overall, the significance and signs of each explanatory variable are basically consistent with the above results, indicating the above conclusions are robust and the three hypotheses are supported. Results can be found in table 6.
Table 6. Robustness test
(1) (2) (3) (4) (5)
m1 m2 m3 m4 m5
VARIABLES FFROA FFROE csr FFROA FFROE
csr 0.0239*** 0.0495** 0.0369*** 0.0707*** (2.673) (2.545) (3.727) (3.266) lnpa 0.00292** (2.362) gg 0.0393*** 0.0735*** (4.836) (4.301) csr_gg 0.0747*** 0.126*** (4.386) (3.481) (3.905) (3.723) (21.53) (3.403) (3.145) DAR -0.109*** -0.100*** -0.0896*** -0.109*** -0.0999*** (-15.76) (-7.098) (-7.714) (-15.77) (-7.097) GRO 0.0190*** 0.0430*** -0.0251*** 0.0184*** 0.0415*** (4.422) (4.837) (-3.170) (4.295) (4.720) TURN 0.0179*** 0.0273*** 0.000936 0.0171*** 0.0257*** (6.704) (4.895) (0.178) (6.465) (4.609) Constant -0.0231 -0.109*** -0.565*** -0.0178 -0.0919** (-1.209) (-2.632) (-13.49) (-0.925) (-2.196) Observations 2,316 2,316 2,316 2,316 2,316 R-squared 0.159 0.054 0.226 0.167 0.063
Robust t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1
5. Discussion
5.1 Major findings
The relationship between CSR and firm performance has been a controversial issue in the past years. The majority of empirical studies indicate positive relationships (e.g. Pil & Rothenberg 2003; Van Beurden & Gössling, 2008; Oeyono, Samy, & Bampton, 2011; Aktas et al. 2011; Cheng et al. 2014; Mishra, 2017 ), while others suggest a
negative or negligible correlation between CSR and firm performance ( e.g. Aupperle, Carroll, & Hatfield, 1985; McWilliams & Siegel 2001; Renneboog et al. 2008; Freire et. al., 2011). The results of this study are in the same page with the researches which show positive effect. The first hypothesis is supported by regression model 1 and model 2, suggesting CSR has significantly positive effect on firm performance. This paper use both ROA and ROE in the next year to measure firm performance, the coefficients of csr towards these two indicators are both positive and significant at 5% and 10% significance level respectively. Rely on resource-based view, CSR-enhanced reputation and firm image are essential intangible resources for firms (Branco & Rodrigues, 2006). The reputation accumulated by CSR practice can show their good citizenship and signal their quality of products and services. Firms with superior resources which are valuable, rare and difficult to be imitated can expect for premium profits. Even though China is a developing country and the complementation of CSR is still in initial phase, the CSR and firm performance relations are still consistent with the findings of the majority studies in developed countries. Considering the studies of this issue in other developing countries, the results are mixed. Such as in the study of Iranian manufacturing and consumer industries, Saeidi et. al. (2015) found the
association between CSR and firm performance is a completely mediated relationship, and the advantageous effect of CSR on firm performance is mediated by corporation reputation and competitiveness. On the other side, Freire et al. (2011) use a sample from Brazil and the results indicated a negative relationship between CSR and firm value, which is contract to our findings. These deviations may due to (i) the different
institutional conditions and (ii) the accessibility of CSR information and monitor of CSR practice which may cause bias in data.
Model 3 supports the second hypothesis, indicating firms with higher innovation intensity tend to devote higher level of CSR practices. The coefficient of Inpa is 0.00301, and it is significant at 1% significance level. With CSR program, firms decrease information asymmetry and build broader and deeper relationships with stakeholders. The superior relationship with the firm encourage stakeholders to share valuable external knowledge to the firm, then the firm can transfer this external knowledge into internal knowledge, which is important to innovative firms. From a resource based perspective, CSR-based reputation can differentiate itself from others and build concrete relationships with its stakeholders. If such a reputational resource is more valuable for firms with higher innovation intensity, then more innovative firms and less innovative ones tend to devote different levels of CSR practices. Firms with more patent applications are those more frequently launch new products and service to markets, accordingly they desire better reputation and find it is beneficial to practicing higher CSR performance. Consequently, firms with higher innovation intensity tend to practice higher CSR performance, which is proved by model 3. The empirical studies also come to same results, and some them even find a mutually reinforcing relationship between CSR and innovation (e.g. Luo and Du, 2014).
value created by CSR practice is different for more frequent innovators and less frequent innovators. For firms with higher innovation intensity, one unit of CSR increase leads to 0.0254+0.0562=0.0816 units increase in the rate of return of total assets in the next year; for firms with lower innovation intensity, one unit of CSR increase leads to 0.0254 units increase in the rate of return of total assets in the next year, and the interaction term csr_gg was significant at the significance level of 1%. Hence, firms with higher innovation intensity can generate more value from higher CSR performance than their counterparts. CSR performance can promote stakeholder engagement and transparency, in turn it gives firms more access to capital resources (Cheng et al., 2014). More innovative firms face more risks than others due to the possible product failure, marketing failure and black swans. Engaging in CSR practice can offer a buffer and offset part of the damage caused by possible failures. The empirical and analytical evidences in previous studies also suggest customers’ consumption decision of new and unfamiliar products is based on the perception of the firms’ image and history performance. In this case, it is much more valuable for more innovative firms to devote higher CSR performance.
.
5.2 Contributions of the study
This paper aims to illuminate the deeper relationship between CSR and firm performance in the context of China, an Asian emerging market and further explains
the moderating effect of innovation intensity. With the support of first hypothesis, that is CSR positively influence firm performance, this study prove the result of previous studies (e.g. Pil & Rothenberg 2003; Van Beurden & Gössling, 2008; Oeyono, Samy, & Bampton, 2011; Aktas et al. 2011; Cheng et al. 2014; Mishra, 2017). It indicates that CSR is value creation but not value destroying in China and further prove Aktas et al. (2011) study which suggested higher CSR practices lead to higher financial profits due to the reputational capital accumulated and information asymmetry decrease.
Next, it introduces innovation intensity as a moderator factor which positively influences the relationship between CSR and firm performance, giving a deeper insight in CSR-CFP (cooperate financial performance) study and broader the study of CSR-innovation study. The previous studies mainly focus on the simple relationship between CSR and innovation, and most of them prove these two factors are mutually reinforcing (e.g., Macgregor and Fontrodona, 2008; Luo & Du, 2014). This study further explains the financial results caused by these two factors and confirm the findings of Mishra (2017). Besides, most of the previous studies are based on the samples from developed countries, whereas this study is conducted in the context of one of emerging markets – China. Hence, it enriches the body of studies in developing countries. With the findings in more and more different contexts, a country –level analysis can be conducted.
Lastly, this study illustrates that the value created by CSR program is different for more frequent innovators and less innovators. It helps MNEs to recognize the
different values can be gained by CSR in emerging markets according to their firms’ characteristic. Address the problem that how does innovation intensity influence profits from CSR. The more innovative firms can investment in CSR program as it can bring more value for them. With the findings of this study, MNEs can make more advanced CSR strategy according to their own conditions, avoiding unnecessary costs from CSR practices, and optimal their profits.
5.3 Limitations and future research
This study has proved that CSR positively affect firm performance which is consistent with the majority researches in other countries. And it further examines the positively moderating effect of innovation intensity on the relationship between CSR and firm performance, confirming the result of Mishra’s study (2017). Yet, it still succumbs to some limitations, which call for further studies.
Firstly, this paper examines the correlation between CSR and firm performance, taking into account the moderator innovations intensity in the context of China, one of the biggest emerging markets. However, China is a part of emerging markets, and the findings derived from the sample from China can’t represent all emerging markets.
Different developing countries adapt various levels of CSR awareness and monitor, which indicates the results of CSR effect on firm performance are highly based on the context where it is implemented (Halme et al., 2009). Thus the findings of this paper are too narrative to serve as a generalized result, which can be totally applied to other countries in developing world. The future research can collect more data from other countries and the result may be different according to the local institutional conditions and policies. For example, Freire et al. (2011) use a sample from Brazil and the results indicated a negative relationship between CSR and firm value, which is contract to our findings. Therefore more researches should be done in different countries and try to find a more generalized relationship. Moreover, with enough researches in different countries, both in developed counties and developing ones, a country-level analysis can be conducted. The future researches can further study the impact of institutional context on the relationship between CSR and firm performance.
Secondly, CSR data is collected from RKS CSR rankings, the most professional and complete CSR database in China. However, due to the immature development of CSR in China, its scale of contained firms is far more enough. The monitor of CSR practice and CSR awareness is much weaker than those of developed countries. In
consequence, only a few firms released CSR report at the beginning and the measurement of CSR is still at initial phase. Moreover, the loosen regulations on intellectual property protection make data collection of the moderator (innovation intensity) more difficult. Accordingly, to make sure all the data of the investigated
firms are accessible, I have to cut down the scale of sample, and finally 640 firms are contained. Even though compared with previous studies on similar issues, the sample size is big enough (e.g., Luo & Du, 2014; Bocquet and Mothe, 2011; Ratajczak and et al., 2016), it still needs further studies based on more mutual and complete
information. With the development of CSR awareness in China, future studies can make a bigger sample and gain a more accurate result using more completed information.
Finally, as mentioned above, innovation intensity is only one of the moderators which can influence the correlation between CSR and firm performance, and there are still many other factors may influence the effect of CSR on firm performance, such as institutional context (Halme et al., 2009). A few moderate factors have been
introduced by scholars. Such as a study based on restaurant industry shows CSR awareness positively moderates the relationship between the social and financial performance ( Rhou, 2015). However, the amount of studies on this aspect is far more sufficient. Considering the mixed results of the relationship between CSR and firm performance, the third factor should be introduced. Therefore, future studies should shed further light on the factors which may moderate this relationship.
6. Conclusion
Considering the mixed results on the relationship between CSR and firm
performance, and the scarcity of researches in the context of developing countries, this paper analyze the effect of CSR on firm performance taking into account the moderating effect of innovation intensity in the context of one emerging markets – China. Accordingly, the research question of this paper is: How dose innovation intensity affect the relationship between CSR and firm performance in one of the emerging markets – China. This study examines this research question using 2853 firm-year observations for 640 listed Chinese firms covered in the RKS database and CSMAR database. The results suggest that CSR positively influence firm
performance, and innovation intensity promotes CSR programs. Firms exhibiting higher level of innovation intensity possess higher value creation from CSR practices. Hence, these findings answer to the research question that innovation intensity has positive effect on the relationship between CSR and firm performance. It deepens our knowledge towards CSR and firm performance relations as well as enriches the body of studies in developing countries. Future studies can examine the correlation between CSR and firm performance in other developing countries and find other moderating factors.
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