Investigating the Effect of Corporate Social Responsibility on the Investment Efficiency and Innovation

One of the manifestations of maximizing the value of a company is performing those activities related to social responsibility that may result in some benefits such as desirable investment and the improvement of products. Therefore, the aim of this research is to investigate the effect of corporate social responsibility on the investment efficiency and innovation of the companies listed on the Tehran Stock Exchange.
Type of the present research is applied, with ex post facto approach and its design is quasi-experimental. In this research, 60 companies listed on the Tehran StockExchange have been investigated during 2009-2014. In order to measure social responsibility, Kinder, Lydenberg, & Domini Co. Inc. ranking method and to measure investment efficiency, Beadle et al. and Chen et al. models have been used. Also, the hypotheses of the research were tested by the Panel Data model.
The results of the research showed that corporate social responsibility has a significant positive effect on the investment efficiency, and it has a significant and negative effect on overinvestment and undercapitalization. Moreover, corporate social responsibility has a significant and positive effect on innovation.
The disclosure of corporate social responsibility reduces agency conflicts and any exploitation of managers of free cash flows and extracted loans in the form of debt. Therefore, the investment inefficiency decreases. Also, evidence points to the fact that the disclosure of social responsibility associates with producing new products as well as appropriate use of the results out of investment in research and development. So, it is necessary for managers to commit to their performing social responsibility duties in order to invest optimally, to produce high quality and high technology products, to retain stakeholder's interests, and to reduce agency costs.