Relationship between technological innovation, corporate social performance, and corporate financial performance

This chapter investigates the relationship between technological innovation, corporate social performance (CSP), and corporate financial performance (CFP) of Japanese manufacturing firms. Firms that aggressively focus on research and development have to build investors’ trust and manage firm risk, including financial and social risks, since most such firms need to raise capital steadily. To achieve this risk reduction, managers of firms with technological competitiveness use activities related to their CSR as one of the instruments to manage firm risk. Empirical evidence presented in this chapter shows that both firm-level innovation and CSP are negatively associated with firm risk, which is evaluated in the stock market. Furthermore, results from the mediation analysis suggest that corporate social responsibility works as a mediator to explain the negative association between firm-level innovation and firm risk. This finding implies that mangers of firms with aggressive corporate innovative activities should be more conscious of corporate social activities in the long run to maintain the trust of participants in the capital market.