The Effects of Innovation and Corporate Social Responsibility on Financial Risk in Companies Listed on the Tehran Stock Exchange

Abstract

: To achieve competitive advantages, companies mostly use innovation strategies and active participation in corporate social responsibility (CSR). Synergy between corporate social responsibility and innovation is manifested with strategic elements of competitiveness. However, the relationship between CSR and innovation is ambiguous. The present study is aimed to investigate the effects of innovation and corporate social responsibility on financial risk in companies listed on the Tehran Stock Exchange (TSE) over the period 2014 - 2019. This research is applied in terms of purpose and correlational descriptive in terms of nature and methodology. In this research, the library method is used for data collection and the data are obtained from financial statements, explanatory notes and the stock exchange journal. Based on the systematic elimination method, 150 companies are selected as a statistical sample and descriptive and inferential statistics are used to describe and summarize the collected data. After the initial tests in the data analysis, a multivariate regression test is performed to verify and reject the hypotheses using E-Views software. We find that innovation has a negative and significant impact on financial risk. Also, the corporate social responsibility has a negative and significant impact on its financial risk. Imitative innovation fosters short-term performance at the expense of long-term technical progress and stakeholder trust, which creates high financial risk. While corporate social responsibility assists companies create a positive image of a "good citizen," it may serve as reputational "insurance." However, a potential contradiction is formed when imitative innovation and corporate social responsibility are observed simultaneously. On the one hand, corporate social responsibility is expected to compensate for the shortcomings of imitative innovation, such as attain the trust of stakeholders and create positive interaction. On the other hand, corporate social responsibility reveals managers' opportunistic behaviors when imitative innovation exactly reflects managers' agency problem by avoiding long-term innovation investment.