Purpose: The purpose of this paper is to investigate investors’ perception of corporate social responsibility (CSR) and its risk-mitigating effects on firm-level innovation in Japan from 2006 to 2017. The authors examine the influence of CSR intensity on firm-specific risks, focusing on the risk-moderating effect of CSR on innovation. Design/methodology/approach: The authors conducted a simple slope analysis and panel data regressions with input and output innovation measures and idiosyncratic risk based on an asset-pricing model. Findings: The results demonstrate that CSR intensity not only reduces firm-specific risk directly but also indirectly by negatively moderating the relationship between firm-level innovation and idiosyncratic risk. Research limitations/implications: Signaling trust to capital markets, CSR engagements in the manufacturing industry are clearly important for innovative firms with active research and development undertakings. Practical implications: Corporate managers should further expand their efforts to make non-financial disclosures available, considering the interactions between CSR intensity and research and development financial risk. Originality/value: In the context of Japanese firms, this study demonstrates the interaction between CSR practices and innovation activities from the perspective of long-term management of corporate sustainability.
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