Effect of innovation on corporate social responsibility: does ownership matter? Evidence from Indian manufacturing firms

Based on the resource-based view that identifies both CSR and innovation as resourceful and competitive advantage-generating activities, the current paper examines the effect of innovation spending on corporate social responsibility (CSR) decisions and how this relationship is affected by state ownership. Using firm-level data on India's manufacturing sector from 2014 to 2016, the study examines the relationship between innovation and CSR spending in the period after the mandatory CSR provisions of the Companies Act, 2013 came into force. An instrumental variable approach is adopted to overcome the problem of endogeneity. To examine if the innovation-CSR spending association is affected by state ownership, the study draws firm-level data on two Indian industry groups from 2011 to 2016 and uses double robustness models. The results suggest that innovation spending affects CSR decisions positively. Additionally, the effect of innovation spending on CSR spending is stronger for private firms.