This study examines how employee-oriented CSR (WCSR) affects Research Quotient innovation efficiency (RQ) using a sample of 1,420 firms from 2002 to 2021. First, the results reveal a negative association between WCSR and RQ, which contradicts our expectations. Then, we conducted the analysis under various conditions and found that the impact of WCSR on RQ is not linear. While WCSR positively affects RQ in firms with stronger governance, its impact is negative when corporate governance weakens. Similarly, in firms with low WCSR, corporate governance negatively affects RQ, suggesting that firms should improve both their WCSR and their governance. The study also documents that the baseline results are mainly driven by the subsamples of high-WCSR firms, big firms, and low-R&D-intensity firms. The relationship between WCSR and RQ takes the shape of an inverted "U". The direct effect of WCSR on RQ first increases, reaches a maximum, and then decreases. Enhanced WCSR positively affects RQ in low-WCSR firms but negatively in high-WCSR firms, suggesting a threshold beyond which increasing investment in WCSR could deteriorate innovation efficiency unless effective governance mechanisms are implemented to counterbalance the adverse effects. The results are robust to various specifications, including alternative measures, dynamic system-GMM, and propensity score matching.
Makpotche et al. (Wed,) studied this question.