Research and development (R&D) investment affects firms’ growth and reflects their investment energy. However, it is recorded as an expense in financial statements, according to generally accepted accounting principles (e.g., International Financial Statements Standards). This study examines whether firms’ R&D investment has a positive effect on their performance, when they engage in corporate social responsibility. The author focuses on firms that have earned corporate social responsibility awards from Global Views Magazine, Common Wealth Magazine, and the Taiwan Institute for Sustainable Energy in order to measure firms’ levels of corporate social responsibility engagement. Tobin’s Q is used as a proxy for firm performance. Because corporate social responsibility engagement is not mandatory in Taiwan, the Heckman two-stage process is used to control for an endogeneity bias. In the first stage, logit regression is employed, using a dummy variable as a proxy for a firm’s social responsibility engagement. In the second stage, the impact of corporate social responsibility on firm value is estimated by regressing Tobin’s Q on various governance and firm characteristics and on a dummy variable for social responsibility engagement. Based on all public traded companies in Taiwan for the period 2005 – 2014, and after controlling for an endogeneity bias, it is found that R&D investment is positively associated with Tobin’s Q, but only when firms engage in corporate social responsibility. Therefore, an investment strategy that meets corporate social responsibility objectives benefits firm performance. The empirical results provide policy implications for firm R&D investment and corporate social responsibility implementation.
Corporate Social Responsibility and Firm Value: The Moderating Effects of Financial Flexibility and R&D Investment
