Government-led CSR effort, innovation, and firm value: Evidence from a quasi-natural experiment in China

Utilizing a quasi-natural experiment that mandates a subset of publicly listed firms in China to disclose corporate social responsibility (CSR) reports, this study examines the impact of a government-led CSR effort on innovation. The comparison between mandatorily disclosed firms and voluntarily disclosed firms disentangles the government-led CSR effort from the aggregate disclosure effect. Our findings reveal that firms that are subject to the government mandate experience a significant increase in patents quantity and quality. This effect is pronounced for both green and non-green innovations. The innovative effect of the mandate is primarily driven by real changes in improved access to government subsidies and increased analyst coverage following the implementation of the mandate, indicating that meeting government-led CSR expectations spurs innovations due to benefits from both the government and the market. Further analysis demonstrates that firm value and stock returns exhibit positive responses to the enhanced innovation resulting from the government-led mandate, effectively mitigating the negative effects of the CSR reporting. This study emphasizes the critical role of government-led CSR effort on firm innovation and provides compelling ground for considering the widespread government involvement in CSR activities around the world in recent years.