The Impact of Profitability Sustainability on Innovation in Dairy Companies: The Multiple Moderating Effects of Corporate Social Responsibility

Abstract

Although previous studies have extensively explored the relationship between corporate profitability and innovation, the specific impact of profitability sustainability on corporate innovation has not received sufficient attention. Furthermore, while Corporate Social Responsibility (CSR) has been recognized as significantly influencing corporate innovation, its moderating role between profitability sustainability and innovation remains underexplored. This study fills these research gaps by empirically analyzing the impact of profitability sustainability on corporate innovation and examining in detail the multiple moderating effects of CSR. This paper employs Ordinary Least Squares (OLS) and Instrumental Variables Two-Stage Least Squares (IV-2SLS) methods, using data from dairy companies listed on China’s A-share and H-share markets from 2016 to 2021, to empirically analyze the impact of profitability sustainability on corporate innovation and to examine in detail the multiple moderating effects of CSR. The results indicate that profitability sustainability significantly promotes corporate innovation. CSR directly moderates this relationship, and along with other moderating variables (financing constraints, executive compensation), it plays a complex role in this interaction, potentially inhibiting the positive connection between profitability sustainability and innovation when acting alone, but significantly enhancing innovation when interacting with CSR. Heterogeneity analysis shows that non-state-owned and H-share listed dairy companies exhibit a more significant positive effect of profitability sustainability on innovation compared to state-owned and A-share listed companies. These findings highlight the key moderating role of CSR in promoting innovation within the dairy industry and offer new perspectives on how profitability sustainability can drive corporate innovation.

1. Introduction

In the context of global economic integration and technological progress, innovation has become a core driving force for the development of the dairy industry and is crucial for sustainable growth [1]. Corporate innovation is defined as the process through which a company generates, implements, and transforms new ideas or actions into new products, technologies, or management models [2]. This innovation activity typically includes investments in research and development (R&D), technological upgrades, and product improvements, which are essential for companies to maintain competitiveness in the market and achieve sustainable growth [3]. Faced with fierce competition both domestically and internationally, the Chinese dairy industry urgently needs to enhance product quality and competitiveness through innovation [4]. Despite various policies implemented by the Chinese government to foster corporate innovation, the innovative activities of dairy companies remain insufficient, especially compared to other sectors within the food industry. According to data from iFinD, the book value of patents and the number of R&D personnel in Chinese dairy companies are significantly below the industry average. Therefore, strengthening innovation in Chinese dairy companies is an urgent task.

Sustained R&D investment and technological upgrades not only require stable and sufficient cash flow but also effective financial management and resource allocation [5]. According to the pecking order theory, firms prefer to use internal funds for R&D investments [6], especially in China’s imperfect capital market or when financing channels are limited, leading many companies to rely primarily on internal funding to support their R&D activities [7]. This phenomenon is also observed in other emerging market countries, such as India and Brazil, where companies face similar financing constraints [8]. Additionally, in Africa, there have been reports of resource-based companies supporting innovation through internal revenues [9]. Thus, the management of internal financial resources, particularly how to sustainably support innovative activities, remains a critical issue. While high-profitability companies typically have more discretionary funds to support innovation and R&D [10], a simple high level of profitability does not always equate to sustainable innovative capacity [11]. Short-term profitability peaks may be temporary, susceptible to market fluctuations and short-term performance, and do not necessarily reflect the long-term financial health of a company. In contrast, the sustainability of profitability emphasizes a company’s ability to consistently generate profits through its core business, providing a more reliable financial foundation for long-term R&D investments and technological innovation [12]. Therefore, the sustainability of profits plays a vital role in corporate innovation.

Profitability sustainability refers to a company’s ability to maintain stable profitability over a long period. It emphasizes the firm’s capacity to consistently generate profits through its core business operations, providing a more reliable financial foundation for long-term R&D investments and technological innovation [13]. Profitability sustainability not only ensures that a company can cover its daily operational costs but also provides necessary funds for long-term R&D and innovation [14]. Companies with high profitability sustainability are often more effective in investing in innovative activities, accumulating intangible assets, and driving technological advancements and product upgrades [15]. However, the relationship between profitability sustainability and corporate innovation is influenced by complex factors such as internal management strategies, market positioning, and external economic conditions [16]. Therefore, a thorough analysis of how profitability sustainability affects innovation in dairy companies, and how various internal and external factors play a role, is crucial for understanding and promoting innovation in the dairy industry.

Corporate Social Responsibility (CSR) has been proven to be an important factor influencing corporate innovation [17]. CSR refers to a company’s responsibility toward the environment, society, and governance while pursuing economic profits [18]. Since the 2008 melamine scandal and the 2022 Maquile incident, and following several other severe food safety incidents, strengthening and effectively implementing CSR has become an urgent need in the Chinese dairy industry. In academia, discussions on the regulatory effects of CSR present two opposing views. The positive impact view suggests that proactive CSR practices can enhance trust between companies and stakeholders, providing a stable external environment and social support for corporate innovation [19], thus creating what is referred to as the “reputational moderation effect” [20]. The negative impact view argues that implementing CSR may lead to a “resource constraint effect”, where the fulfillment of corporate social responsibilities could divert company resources and personnel, thereby weakening the support that profitability sustainability provides for corporate innovation [21]. Although CSR can enhance a company’s social image and may bring market and funding advantages in the long run, if not managed properly, excessive social responsibility expenditures might weaken the ability of profits to translate into innovation in the short term [22]. Therefore, this study focuses on CSR to explore its impact on the relationship between profitability sustainability and corporate innovation.

In summary, the Chinese dairy industry currently faces dual challenges of corporate innovation and social responsibility, both of which depend on long-term and stable financial support. Against this backdrop, this study constructs a theoretical and empirical analysis framework based on theories of corporate innovation, stakeholder theory, and pecking order theory. This framework not only integrates the core concepts of modern corporate management but also fits the complex challenges that companies face in the current global context. By using a mix of econometric methods such as mixed regression models, two-stage least squares (IV-2SLS), moderation models, and joint moderation models, a comprehensive empirical analysis was conducted on dairy companies listed on China’s A-share and H-share markets from 2016 to 2021.

This study aims to fill gaps in the existing literature by empirically analyzing the impact of profitability sustainability on corporate innovation and exploring the multiple moderating effects of Corporate Social Responsibility (CSR) in detail. The innovation and contributions of this research are highlighted in several key aspects.

First, it focuses on the dairy industry, a sector that has received relatively less attention in corporate innovation research compared to other industries. Strengthening corporate innovation in Chinese dairy enterprises is particularly urgent.

Second, this study introduces profitability sustainability as a critical factor influencing corporate innovation, providing researchers with a new perspective beyond the traditional focus on profit levels.

Third, this study examines the complex moderating role of CSR, emphasizing both its positive and negative impacts on the relationship between profitability sustainability and corporate innovation. The results indicate that although corporate social responsibility (CSR) directly negatively moderates the relationship between profitability sustainability and corporate innovation, its interaction with other negative moderating variables (such as financing constraints and executive compensation) generates a positive joint moderating effect. This interaction ultimately strengthens the relationship between profitability sustainability and corporate innovation.

In summary, this study not only addresses significant gaps in the existing literature but also offers practical recommendations for enhancing corporate innovation in the dairy industry through sustainable profit management and strategic CSR practices.

The structure of this paper is as follows: Section two provides a detailed introduction to the theoretical background and research hypotheses. Section three describes the research design and methods, including data sources, variable selection, and estimating model. Section four presents key empirical results and discusses their significance for the innovative practices of dairy industry companies. Section 5 discusses its theoretical and practical contributions and identifies limitations and directions for future research. Section 6 summarizes the main findings of this study.

2. Theoretical Analysis and Research Hypotheses

2.1. The Impact of Profitability Sustainability on Innovation in Dairy Companies

Profitability sustainability reflects the characteristic of a company to maintain profitability over the long term, which is crucial for its survival and development. In the dairy industry, profitability sustainability significantly influences a company’s R&D investments and innovative activities. According to Lerner et al. (2011), a consistent profit model provides continuous and stable internal funding for corporate innovation. This ongoing profitability not only ensures the daily operations of a company but also secures the necessary funds for innovative activities, helping companies accumulate intangible assets through R&D investments and thereby driving technological and product innovation [14]. Research by Suteja J. et al. (2023) using panel data analysis of 215 non-financial sector companies on the Indonesian Stock Exchange from 2018 to 2020 suggests that companies can control investment decisions through sound financial and risk management [23]. Guan and Ma (2003) also support this view, stating that companies with high profitability sustainability tend to have stronger innovation capabilities and better export performance. Profitability sustainability not only provides internal funding support for a company’s innovative activities but also helps enhance the confidence of external investors and credit institutions in the company [24]. Helfat and Raubitschek (2000) explored how companies can shape their product sequences through profit accumulation and innovation. The authors argue that sustained profitability enables companies to invest in R&D and innovation, thus achieving success in product innovation [25]. Teece (2016) examined the impact of dynamic capabilities on corporate innovation, proposing that profitability sustainability can promote the cultivation and development of dynamic capabilities, thus driving success in innovation [26]. Ramadan, M. et al. (2022) discussed how companies can maintain competitive advantages and achieve strategic objectives by integrating Industry 4.0 technologies and internal organizational forces. That study emphasized the importance of a sustained profit model in supporting corporate innovation activities and technological upgrades. Their profit model ensures that companies can continuously invest in research and development, thereby achieving long-term growth [27]. Based on the above analysis, this paper proposes the following research hypothesis:

H1: 

Profitability sustainability positively promotes innovation in dairy companies.

2.2. The Moderating Role of Corporate Social Responsibility on the Relationship between Profita bility Sustainability and Innovation in Dairy Companies

In the dairy industry, the importance of Corporate Social Responsibility (CSR) is particularly prominent as the industry’s products directly relate to consumer health and safety. Regarding the mechanisms of the CSR impact, there are two opposing views in academia: the “reputation moderating effect” and the “resource constraint effect”. The “reputation moderating effect” posits that companies actively fulfilling their social responsibilities can establish a better brand image and consumer trust, thereby providing a more stable market foundation for innovative activities (Eccles et al., 2014) [28]. This positive effect can be moderated by mechanisms such as resource acquisition, stakeholder relationships, and employee participation. Companies can establish stronger credibility in the financial markets by obtaining lower-cost funds (Mondal et al., 2023) [29]. A good CSR record also helps attract socially responsible investment funds and ethically oriented investors, providing a stable source of funding for the company’s R&D investments and innovation projects (Modak et al., 2019) [30]. Moreover, CSR practices, by strengthening corporate relationships with suppliers, customers, and R&D institutions, help companies obtain technology, expertise, and market information, all key resources for innovation (Le and Ferasso, 2022) [31]. CSR also attracts and retains highly skilled employees, further enhancing a company’s innovative capacity (Kong et al., 2023) [32]. In EU countries, the positive impact of CSR on promoting sustainable development and corporate innovation is well-supported by extensive research [33].

The “resource constraint effect” [21] argues that the allocation of substantial financial and human resources during the fulfillment of social responsibilities may divert resources from innovation and core business activities, thereby inhibiting corporate innovation. This is particularly evident in resource-limited small and medium enterprises, where high CSR costs may limit these companies’ investments in new technologies and product development, thus inhibiting the support of profitability sustainability for corporate innovation (Bothello et al., 2023) [34]. In some emerging markets, companies may encounter issues with resource allocation when implementing CSR, which can adversely affect their innovation capabilities (Le et al., 2022) [21]. In some African countries, excessive CSR investments have been found to potentially lead to financial strain on companies, thereby affecting their innovation capabilities [35].

Considering the above, this study hypothesizes that CSR moderates the relationship between profitability sustainability and corporate innovation (H2). Understanding this dual effect is crucial for formulating effective corporate strategies aimed at balancing stakeholder expectations with corporate innovation needs.

H2: 

Corporate social responsibility moderates the relationship between profit levels and corporate innovation.

2.3. The Moderating Role of Financing Constraints and Executive Compensation

Financing constraints are one of the key factors affecting innovation in the dairy industry. The availability of funds directly determines whether a company can engage in necessary R&D activities and long-term investments. Extensive research has confirmed the restrictive impact of financing constraints on corporate innovation activities. For example, Cui X et al. (2023) used the SA index to measure financial constraints, finding that financing constraints exacerbated the negative impact of economic policy uncertainty on corporate innovation. Additionally, Zhao M. and Zhang B. (2023) analyzed survey data from the World Bank on Chinese companies in 2012, finding that companies with lower financing constraints were more likely to engage in innovative activities [36]. Furthermore, Abdin J. et al. (2024) showed that financing constraints hinder incremental innovation in companies, with adverse effects stemming both from within and across industries [37]. Yin et al. (2019) utilized data from the 2012 World Bank China Enterprise Survey to examine the impact of financial constraints on corporate R&D investment. The empirical results indicate that financial constraints significantly hinder corporate R&D investment [38].

The executive compensation mechanism is an important component of the governance structure in dairy companies, significantly impacting a company’s profitability sustainability and innovation capabilities. The impact of executive compensation on innovation in dairy companies can be explored from both positive and negative aspects. When executive pay is closely aligned with the company’s long-term goals and performance, top managers are more likely to adopt a long-term perspective in managing the company, thereby increasing investments in R&D and innovation. For instance, Yang L and Mao L (2023) analyzed multiple dimensions, including profitability and growth potential, finding that performance-linked executive compensation greatly enhanced the company’s innovative capacity and market competitiveness [39]. Similarly, Phung G et al. (2023) found that companies with higher levels of executive compensation demonstrated higher levels of innovation participation [40].

However, the executive compensation mechanism can also have negative impacts, particularly when pay is overly reliant on short-term targets, potentially leading management to favor short-term gains at the expense of long-term R&D and innovation investments. Li Q et al. (2023) studied the impact of CEO compensation policies in Chinese state-owned enterprises and found that excessively regulated compensation policies might inhibit executives’ motivation to engage in long-term investments and innovations [41]. Moreover, Doruk Ö T. (2023) pointed out that in some cases, shareholder value-based executive compensation could have a crowding-out effect on R&D investments, especially in economically pressured or market-unstable environments [42].

Based on the above analysis, this paper proposes the following research hypotheses:

H3: 

Financing constraints moderate the relationship between profitability sustainability and innovation in dairy companies.

H4: 

Executive compensation moderates the relationship between profitability sustainability and innovation in dairy companies.

2.4. The Joint Moderating Role of Corporate Social Responsibility and Financing Constraints

In the dairy industry, Corporate Social Responsibility (CSR) not only enhances the public image and increases social trust but also helps improve financing conditions. Molla M (2023) explored through stakeholder theory how companies can alleviate the adverse impacts of financing constraints through cooperation with other organizations. Such cooperation not only provides additional resources but also enhances the company’s adaptability in facing financing constraints [43]. Wang et al. (2016) also supported this view, showing that CSR activities help companies obtain necessary resources in resource-limited environments, which not only enhance the corporation’s reputation but also improve financing conditions, thereby supporting the company’s innovation and development projects [44]. Song X et al. (2023) found that CSR not only directly promotes corporate green innovation but also positively impacts it by alleviating financing constraints [45]. Uyar A (2024) noted that CSR performance and reporting help emerging market companies access debt, enhancing financing opportunities [46]. Cheng et al. (2014) further showed that investments in CSR are inversely related to financing costs, indicating that CSR activities that enhance corporate reputation can reduce financing costs, thereby improving profitability [47]. Y. Li et al. (2022) found that high corporate social responsibility (CSR) performance of polluting enterprises (including responsibilities toward shareholders, employees, suppliers, customers, the environment, and the community) is associated with lower debt costs. CSR reduces debt costs by decreasing information asymmetry and operational risk [48]. Z. Guo et al. (2020), using data from 2311 companies between 2010 and 2016, discovered that financial flexibility moderates the relationship between CSR and the firm’s value, significantly reducing the positive correlation between CSR and systemic risk [49].

Attig N. (2024) studied the effects of relaxed financial constraints on CSR using a difference-in-differences analysis, demonstrating that easing financial constraints led to higher CSR [50]. Y Yang and J Han (2023) utilized panel data from 710 Chinese listed companies from 2011 to 2020, employing fixed effects models and System GMM to conduct empirical research, finding that alleviating financing constraints had a significant impact on enhancing CSR performance.

In summary, there is a complex interplay between corporate social responsibility (CSR) and financing constraints. Within the dairy industry, CSR and financing constraints may mutually influence each other, jointly modulating the relationship between corporate profitability sustainability and innovation. Hence, this paper proposes research hypothesis H5:

H5: 

There is a complex interaction between Corporate Social Responsibility and financing constraints in dairy companies, jointly moderating the relationship between profitability sustainability and corporate innovation.

2.5. The Joint Moderating Role of Corporate Social Responsibility and Executive Compensation

The executive compensation mechanism is a key incentive tool within companies, directly influencing executives’ behavior and decision-making. In the dairy industry, linking executive compensation with CSR performance is particularly important, as it not only motivates executives to pursue economic benefits while also focusing on the company’s social and environmental impacts but also helps enhance the image of executives as corporate ethical role models. This compensation structure not only reflects the pursuit of economic benefits but also demonstrates the company’s commitment to social contributions, further promoting the alignment of executive behavior with CSR objectives.

Aggarwal and Samwick (1999) pointed out that linking executive compensation with the company’s long-term goals and sustainability can strongly motivate executives to focus on the company’s long-term interests and innovative activities [51]. Sarhan AA and Al-Najjar B used one of the largest UK datasets to study the impact of corporate governance structures on CSR in non-financial listed companies in the FTSE 350 from 2002 to 2016, finding that the governance structure had a positive impact on CSR. The compensation structure, as a corporate governance tool, guides management decisions toward participating in CSR activities and achieving the company’s strategic sustainability goals [52].

Ikram et al. (2020) studied the relationship between CEO pay sensitivity (Delta and Vega) and Corporate Social Responsibility (CSR), finding that executive compensation incentives through CSR channels significantly impact corporate innovation [53]. Specifically, linking executive compensation to CSR can motivate executives to drive innovation while fulfilling social responsibilities. However, this association can also lead to resource misuse. Recent literature on Chinese listed firms indicates that CSR might be misused to cover corporate fraud, such as goodwill impairment, suggesting that careful management of CSR implementation is necessary to avoid negative consequences [54].

Further research by Choi et al. (2021) found that analyzing various components of CEO compensation (e.g., structure, type, mix, and allocation) can identify compensation systems that better support CSR and enhance innovation performance [55]. Boubaker et al. (2018) also noted that integrating CSR standards into executive compensation is associated with higher innovation output, underscoring the importance of compensation structure in moderating the CSR–innovation relationship [56].

Similarly, Yang Y-R (2023) found a significant positive relationship between CSR practices and CEO compensation levels, and that executive compensation moderates the relationship between CSR and corporate innovation [57]. Velte P (2020) analyzed the links between CEOs and CSR, highlighting the multilayered relationships between CEO incentives, characteristics, and CSR. That study indicated that while CEO incentive strategies significantly influence the priorities and implementation of CSR activities, the personal characteristics of CEOs also play a crucial role in shaping the organization’s approach to CSR [58].

Therefore, in the dairy industry, Corporate Social Responsibility (CSR) and executive compensation may influence each other, jointly moderating the relationship between profitability sustainability and corporate innovation. This paper proposes the following research hypothesis:

H6: 

In listed dairy companies, Corporate Social Responsibility and executive compensation jointly moderate the relationship between profitability sustainability and corporate innovation.

3. Data Sources, Model Setup, and Variable Selection

3.1. Data Sources

There are a total of 33 dairy companies listed on China’s A-share and H-share markets, with 13 of them listed after 2015. The profitability sustainability (SUS) is calculated as a five-year average. Due to this calculation method, data for many companies is not available for the full period required. Based on data availability, we selected 20 companies with complete data from 2016 to 2021. These financial indicators, due to their clarity, objectivity, and ease of quantification, facilitate precise calculations and assessments. To ensure the high reliability and accuracy of the data, this study primarily utilizes the professional version of Tonghuashun iFinD as the data retrieval tool. This tool is widely recognized within the financial industry and is considered an authoritative source of data, thereby ensuring the professionalism and reliability of the data used in this study. By selecting these 20 companies, we can accurately measure the impact of profitability sustainability on corporate innovation within the specified period.

3.2. Variable Selection

(1) Dependent Variable: Corporate Innovation. This study considers corporate innovation as a series of actions by which a company generates and implements new ideas or actions and transforms them into innovative outcomes such as new products, new technologies, or new management models. Due to the extensive scope of corporate innovation performance and the intervention of external uncontrollable factors, scholars at home and abroad exhibit significant differences in the measurement indicators and methods for corporate innovation that they use. Based on the disclosed information of A-share and H-share listed companies and the new accounting standards, and considering the data availability, this study adopted the method of Ju Xiaosheng (2013) [59], using the increment of intangible assets (intangible asset increase/total assets) as a proxy variable for the degree of corporate innovation input. This proxy variable integrates the company’s investments in areas such as R&D, human resource training, and patent applications, thereby more comprehensively reflecting the company’s innovation activity strengths.

(2) Core Explanatory Variable: Profitability sustainability. Referring to Beisland and Hamberg (2013) [60] and Sun Xiaohua (2021) [7], this paper uses a composite value of a company’s financial condition over five years to represent profitability sustainability (SUS). The formula for calculating profitability sustainability is as follows:

$$SU{S}_{i,t}=T{A}_{i,t-1}\left(\frac{{\sum }_{j=t-4}^t\left(\frac{E_{i,j}}{T{A}_{i,j=1}}\right)}{5}\right)$$

(1)

where TA represents total assets and E represents net earnings. This formula uses a five-year window (from t − 4 to t), which to some extent captures the trend and stability of corporate earnings. Compared to data from a single time point, this method can more accurately reveal the long-term trend of corporate earnings. In the calculation process, by comparing corporate net earnings to total assets, not only is the profitability per unit of an asset assessed but also the efficiency of asset operation and the sustainability of profits are reflected. In particular, the ratio of corporate net earnings to total assets considers relative profitability, not just absolute profit figures. This calculation method is more suitable for comparing companies of different sizes, ensuring fairness and reasonableness in the assessment of profitability sustainability. In summary, this formula provides a scientific and comprehensive method to assess and compare the profitability sustainability of companies.

(3) Control Variables: To fully explore and understand the interrelationships among corporate profitability sustainability, corporate social responsibility, and corporate innovation, this study referenced a large body of academic literature on the interactions among these three [61,62,63,64,65,66]. Considering a variety of influencing factors, this study selected company age (AGE), company size (SIZE), debt ability (DEBTAB), cash capability (CASH), growth capability (GROWTH), corporate R&D (FIRMRD), market competition level (MARKET), and sales expenses (SELL) as control variables.

(4) Moderating Variables: The impact of profitability sustainability on corporate innovation in dairy companies may be influenced by a variety of moderating variables. This paper delves into how Corporate Social Responsibility, financing constraints, and executive compensation function as moderating variables affecting the relationship between profitability sustainability and corporate innovation.

The Corporate Social Responsibility index evaluated by third-party rating agencies has received widespread recognition in the academic community. However, most dairy companies listed on the stock market have not yet undergone such assessments. Therefore, this paper defines a set of social responsibility evaluation indicators based on stakeholders for dairy companies listed on the A-share and H-share markets and calculates these indicators using the entropy method. According to the stakeholder theory of Corporate Social Responsibility, this paper draws on the research of Christian Le Bas (2017) [67], Ante Glavas (2020) [68], Chkir Imed (2020) [69], Mcbarnet, D.J. (2007) [70], Zhang Zhijun (2016) [71], Zhu Yingyin (2018) [72], Chen Yufen and Jin Bixia (2020) [73], Guan Xuemei (2020) [66], and Li Yunting (2016) [64], among others. Additionally, this paper refers to a series of standards and guidelines issued by international, domestic, and other organizations, defining stakeholders of dairy companies listed on the stock market as shareholders and creditors, consumers, employees, partners, government, community welfare, and the environment, among seven major categories. This includes providing maximum economic benefits to shareholders, creditors, and other stakeholders; providing high-quality dairy products that meet consumer needs; providing a safe and healthy work environment and reasonable labor compensation for employees; providing stable and timely products to business partners; complying with laws and regulations in production and business activities and paying taxes accordingly; participating in social welfare activities; and protecting the ecological environment. These indicators aim to comprehensively reflect the economic, social, and environmental responsibilities of dairy companies. In particular, the consumer responsibility indicators of the dairy industry, such as product quality and safety, are emphasized to highlight their focus on consumer rights and product quality. Through this set of indicators, this study aims to provide an objective and comprehensive evaluation of the social responsibility performance of dairy companies listed on the stock market. Detailed indicators and their definitions are shown in

Table 1. Social Responsibility Indicators Selection and Meaning.

Stakeholder	Indicator Meaning	Indicator Name	Indicator Calculation	Direction
Shareholders and Creditors (SHAR)	Profitability	Return on Equity	Net Profit/Net Assets × 100%	+
		Return on Invested Capital	Pre-tax Post-interest Operating Profit/Invested Capital × 100%	+
	Growth	Capital Accumulation Rate	Change in Shareholder Equity/Initial Shareholder Equity × 100%	+
	Safety	Interest Coverage Ratio	Earnings Before Interest and Taxes/Interest Expense	+
Consumers (CONS)	Quality Safety	Product Testing	Dairy Product Factory Pass Rate	+
		Toxic and Harmful Substances Compliance with National Standards	Compliant = 1, Non-compliant = 0	+
		Product Quality	Number of Negative News Exposures About Product Quality	−
	Product Popularity	Cash Received from Sales Ratio	Cash from Sales of Goods and Services/Operating Income	+
	Product Input	Main Business Cost Rate	Main Business Cost/Main Business Income	+
Partners (PART)	Suppliers	Inventory Turnover Rate	Main Business Cost/Average Inventory	+
	Distributors and Customers	Accounts Receivable Turnover Rate	Net Credit Sales for the Year/Average Accounts Receivable	+
		Operating Income Growth Rate	Change in Operating Income/Initial Operating Income × 100%	+
Government (GOVE)	Taxation	Net Amount of Taxes Paid	Taxes Paid − Taxes Refunded	+
		Tax Growth Rate	Change in All Taxes/Initial All Taxes × 100%	+
Community Welfare (COMM)	Employment	Employment Increase Rate	Change in Number of Employees/Initial Number of Employees × 100%	+
		Employment Contribution Rate	Cash Paid to Employees and for Employees/Average Net Assets	+
	Donation	External Donation Rate	External Donations/Operating Income	+
Employees (EMPL)	Wage Level	Average Annual Income of On-duty Employees	Compensation Payable to Employees/Number of On-duty Employees	+
		Employee Compensation Growth Rate	Change in Employee Compensation/Initial Employee Compensation × 100%	+
	Labor Efficiency	Labor Productivity	Operating Income/Number of On-duty Employees	+
Environment (ENVI)	Ecological Environmental Protection	Investment in Ecological Environmental Protection	No Investment = 0, Investment = 1	+

Note: In the table, (+) represents a positive indicator, where a higher value is better, and (−) represents a negative value, where a lower value is better.

.

This paper adopts the method of Ma Shuzhong and Zhang Hongsheng (2017) [74], using the current ratio (i.e., the ratio of current assets to current liabilities) as a proxy indicator for financing constraints. This indicator reflects the debt repayment ability and financing strategy of dairy companies listed on the stock market, accurately quantifying the level of financing constraints.

This paper uses the natural logarithm of the total annual compensation of executives as a proxy variable for executive compensation. The high compensation incentive mechanism has dual potential effects: on one hand, it can inspire executives to promote the company’s innovative activities; on the other hand, it may lead executives to excessively pursue short-term profits, thereby sacrificing the company’s long-term innovation capability.

Variable meanings and descriptive statistics are shown in

Table 2. Variable Definitions and Descriptive Statistics.

	Variable Name	Symbol	Definition	Mean	Standard Deviation	Minimum	Maximum
Dependent Variable	Firm Innovation	INNO	(Increase in intangible assets/Total assets at beginning of period) × 100; multiplied by 100 for reporting convenience, without affecting empirical conclusions	3.431	22.553	−39.37	189.355
Independent Variable	Profitability Sustainability	SUS	$\mathrm{T}{\mathrm{A}}_{\mathrm{i},\mathrm{t}-1}\left(\frac{{\sum }_{\mathrm{j}=\mathrm{t}-4}^{\mathrm{t}}\left(\frac{{\mathrm{E}}_{\mathrm{i},\mathrm{j}}}{\mathrm{T}{\mathrm{A}}_{\mathrm{i},\mathrm{j}=1}}\right)}{5}\right)$	56.53	169.516	−248.967	953.323
Control Variables	Company Age	AGE	LN (observation year − year of establishment + 1)	2.775	0.438	1.386	3.526
	Company Size	SIZE	LN (Total assets)	21.884	2.17	10.736	25.348
	Debt Repayment Ability	DEBTAB	Net debt/Owner’s equity × 100%	159.645	1359.174	−66.733	14,368.831
	Cash Capacity	CASH	Cash flow from operating activities/Operating revenue	18.029	31.536	−40.562	193.744
	Growth Capacity	GROWTH	Year-on-year growth rate of earnings per share	−34.909	275.695	−1186.558	1115.909
	Corporate R&D	FIRMRD	Management expenses/Total operating revenue	6.81	3.406	2.787	24.933
	Degree of Market Competition	MARKET	Marketization index of the firm’s location	8.75	2.259	4.45	11.746
	Selling Expenses	SELL	Selling expenses/Total operating revenue	15.765	12.581	0.134	62.126
Moderating Variables	Corporate Social Responsibility	CSR	Calculated from rating indicators	0.129	0.065	0.029	0.432
	Financing Constraints	FC	Current assets/Current liabilities	1.405	0.894	0	6.298
	Executive Compensation	SAL	LN (Total annual executive compensation)	6.256	1.389	−0.245	9.018

. The average value of corporate innovation in the sample is 3.431, with a standard deviation of 22.553, indicating significant differences in the level of innovation among different companies and an overall low level of innovation. This may reflect the imbalance in technological innovation and R&D investment in the dairy industry, as well as a lack of innovation awareness. The average value of profitability sustainability (sus) is 56.53, with a standard deviation of 169.516, showing significant differences in profitability sustainability among dairy industry companies. This may be influenced by various factors such as the degree of market competition, fluctuations in raw material prices, and brand competitiveness.

3.3. Estimating Model

3.3.1. Base Model

To study the impact of the independent variable, Profitability Sustainability (SUS), on the dependent variable, Corporate Innovation (INNO), the initial consideration was to use a panel data regression model. The panel data model takes into account the dual dimensions of time and cross-sectional units (or individuals). Initially, the paper considered using a fixed-effects model, which can eliminate unobserved effects of the cross-sectional units. The general form of the fixed-effects model is as follows:

$$y_{i,t}={\beta }_0+{\beta }_1{x}_{it}+{\beta }_2{control}_{it}+{\alpha }_i+{\mu }_{it}$$

(2)

where y is the dependent variable, x is the independent variable, ${\alpha }_i$ represents the fixed effect for cross-sectional unit i, and ${\mu }_{it}$ denotes the error term.

To determine the appropriateness of the fixed-effects model, we conducted an F-statistic test to check for significant fixed effects among the cross-sectional units. As shown in

Table 3. Multivariate Regression Analysis Results.

INNO	Coefficient	Std. Error	T-Statistic	p-Value	95% Confidence Interval		Significance
SUS	−4.117	1.82	−2.26	0.028	−7.769	−0.464	**
AGE	−15.283	9.537	−1.60	0.115	−34.422	3.855
SIZE	10.157	4.915	2.07	0.044	.295	20.019	**
DEBTAB	0.031	0.041	0.74	0.463	−0.052	0.113
CASH	0.178	0.119	1.49	0.142	−0.061	0.418
GROWTH	−0.001	0.004	−0.39	0.695	−0.009	0.006
FIRMD	0.236	0.41	0.57	0.568	−0.587	1.059
MARKET	−1.085	2.881	−0.38	0.708	−6.867	4.696
SELL	0.418	0.209	2.00	0.051	−0.001	0.837	*
Constant	−173.721	91.134	−1.91	0.062	−356.595	9.153	*
Mean dependent var		0.912	SD dependent var			5.958
R-squared		0.179	Number of obs			79
F-test		1.263	Prob > F			0.233
Akaike crit. (AIC)		490.573	Bayesian crit. (BIC)			514.268

Note: **, * denote significance at the 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

, the F-statistic value is above 5%, indicating that the null hypothesis cannot be rejected, i.e., there are no significant fixed effects among all cross-sectional units. Therefore, considering the insignificance of fixed effects, we opted to use the Pooled OLS model for further analysis. This model is more computationally efficient and tends to provide estimates similar to the fixed-effects model in contexts where inter-sectional differences do not need to be explained. The model setting is as follows:

$$y_{i,t}={\lambda }_0+{\lambda }_1{x}_{it}+{\lambda }_2{control}_{it}+{\mu }_{it}$$

(3)

where y is the dependent variable, x is the independent variable, and ${\mu }_{it}$ denotes the error term.

3.3.2. Moderating Model

After establishing the base model, a moderating model is constructed as shown below:

$$y_{i,t}={\omega }_o+{\omega }_1{x}_{i.t}+{\omega }_2{mod}_{i,t}+{\omega }_3{mod}_{i,t}{x}_{i.t}+{\omega }_{4}contro{l}_{i,t}+{\mu }_{it}$$

(4)

where ${mod}_{i,t}$ represents the moderating variables, which in this chapter include corporate social responsibility, financing constraints, and executive compensation. Given that the coefficient ${\lambda }_1$ of the dependent variable is significant if the coefficient ${\omega }_3$ of the interaction term between the moderating variable and profitability is significant, this indicates that the main effect is moderated. $\lambda ,\omega$ denotes the regression coefficients of the respective variables.

3.3.3. Joint Moderating Model

Drawing on the study by Liu Yexin and Wu Weiwei (2021) [75], models 4, 5, and 6 are constructed based on the moderating effect model, incorporating Corporate Social Responsibility ($CS{R}_{i,t}$) and other moderating variables to test the joint moderating effects of Corporate Social Responsibility and other variables (such as financing constraints and executive compensation). Model 5 is designed for a specific purpose, to test whether CSR has a second-level moderating effect, while Model 6 is a more comprehensive model to test all possible interaction effects. If the coefficients of the interaction terms among profitability, the Corporate Social Responsibility index, and the moderating variables ${mod}_{i,t}$ in Models 5 or 6 are significant, this confirms that CSR not only has a moderating role but may also strengthen or weaken the moderating effects of other variables ${mod}_{i,t}$ on the relationship between profitability sustainability $x_{i.t}$ and corporate innovation.

$$y_{i,t}={\phi }_o+{\phi }_1{x}_{i.t}+{\phi }_{2}CS{R}_{i,t}+{\phi }_3{mod}_{i,t}+{\phi }_{4}contro{l}_{i,t}+{\mu }_{it}$$

(5)

$$y_{i,t}={\eta }_o+{\eta }_1{x}_{i.t}+{\eta }_2{mod}_{i,t}+{\eta }_{3}CS{R}_{i,t}+{\eta }_{4}CS{R}_{i,t}{mod}_{i,t}{x}_{i.t}+{\eta }_{4}contro{l}_{i,t}+{\mu }_{it}$$

(6)

$$\begin{gathered} y_{i,t}={\kappa }_o+{\kappa }_1{x}_{i.t}+{\kappa }_{2}CS{R}_{i,t}+{\kappa }_3{mod}_{i,t}+{\kappa }_{4}CS{R}_{i,t}{mod}_{i,t}+{\kappa }_5{x}_{i.t}CS{R}_{i,t}+{\kappa }_6{x}_{i.t}{mod}_{i,t} \\ +{\kappa }_7{x}_{i.t}CS{R}_{i,t}{mod}_{i,t}+{\kappa }_{8}contro{l}_{i,t}+{\mu }_{it} \end{gathered}$$

(7)

4. Empirical Results

4.1. Unit Root Test

Before estimating econometric models with time series or panel data, it is crucial to ensure data stationarity. Non-stationary data can lead to “spurious regression”, which may compromise the accuracy and robustness of model predictions. The panel data in this study exhibits a large N and small T characteristic, with a balanced panel data of 20 dairy companies over 6 years. To ensure the validity and reliability of the research results, the Levin test method was used to examine the stationarity of the panel data. The Levin test is a widely used unit root test method for evaluating whether time series in panel data possess unit roots, i.e., whether they are non-stationary. As shown in

Table 4. Levin Unit Root Test Results.

Variable	Statistic	Result
INNO	−14.9905 ***	Stationary
SUS	−11.3959 ***	Stationary
AGE	−28.1598 ***	Stationary
SIZE	−39.4482 ***	Stationary
DEBTAB	−36.6477 ***	Stationary
CASH	0.1349	Non-stationary
GROWTH	−5.0747 ***	Stationary
FIRMRD	−40.4339 ***	Stationary
MARKET	−0.4659	Non-stationary
SELL	0.4807	Non-stationary

Note: *** denote significance at the 1% levels, respectively. Standard errors are in parentheses, same as below.

, the Levin unit root test results indicate that at the 1% significance level, the null hypothesis that the variables INNO, SUS, AGE, SIZE, DEBTAB, GROWTH, and FIRMRD contain unit roots is rejected, indicating that these variables are stationary. Although a few variables, such as CASH, MARKET, and SELL, did not pass the unit root test, this does not affect the overall stationarity of the data. Therefore, by passing the Levin unit root test, the stationarity of the data is ensured, providing a foundation for the accuracy and robustness of subsequent model predictions.

4.2. Baseline Regression and Endogeneity Test of Profitability Sustainability on Innovation in Dairy Enterprises

To ensure the accuracy of the estimation results and avoid potential endogeneity issues, this section employs Ordinary Least Squares (OLS) and Instrumental Variables Two-Stage Least Squares (IV-2SLS) to verify the impact of profitability sustainability (SUS) on firm innovation (INNO). The specific results are presented in

Table 5. Baseline Regression and Endogeneity Test Results.

	OLS (1)	OLS (2)	IV-2SLS
	INNO	INNO	INNO
SUS	−0.003 (0.006)	0.033 * (0.018)	0.039 ** (0.02)
AGE		−4.622 (4.349)	−5.698 (7.031)
SIZE		−1.466 (1.926)	−0.606 (2.476)
DEBTAB		−0.004 * (0.002)	−0.086 (0.085)
CASH		−0.166 (0.129)	−0.18 * (0.096)
GROWTH		0.014 (0.009)	0.011 (0.009)
FIRMED		2.197 (1.509)	4.19 8 *** (0.937)
MARKET		2.355 * (1.258)	4.065 *** (1.222)
SELL		−0.603 * (0.340)	−1.108 *** (0.295)
Constant	3.595 (2.360)	27.581 (54.887)	−7.859 (64.655)
Observations	120	120	120
R-squared	0.000	0.202	0.371

Note: ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

.

According to the results in Table 5, in the OLS regressions (Models 1 and 2), the relationship between profitability sustainability and firm innovation is not significant when other variables are not controlled. However, after controlling for factors such as company age (AGE) and company size (SIZE), the coefficient of SUS in Model 2 is 0.033, significant at the 10% level. This indicates that profitability sustainability is significantly and positively associated with firm innovation when other influencing factors are accounted for, thereby supporting research hypothesis H3.

Additionally, the control variable debt repayment ability (DEBTAB) is negatively correlated with firm innovation, while market competition degree (MARKET) and selling expenses (SELL) are positively correlated. This suggests that firms are more inclined to innovate in highly competitive and large market environments, whereas high debt levels limit innovation activities. Variables such as company age (AGE), company size (SIZE), cash capacity (CASH), and growth capacity (GROWTH) do not significantly affect firm innovation.

The primary focus of this study is the impact of profitability sustainability on firm innovation. However, it must be noted that a firm’s innovative behavior may, in turn, influence its profitability sustainability. There may be other factors not considered in the analysis that simultaneously affect both profitability sustainability and firm innovation. This bidirectional relationship and potential omitted variable problem could lead to endogeneity issues, affecting the accuracy of the model estimates. Given that traditional OLS cannot effectively address endogeneity issues, this study employed the IV-2SLS method for regression analysis to improve the accuracy of the research results. The Dubin–Wu-Hausman test results (Prob > chi2 = 0.0035) reject the null hypothesis at the 1% level, indicating the presence of endogeneity and justifying the necessity of using the IV-2SLS method.

In selecting instrumental variables, this study used the first lag (g1) and second lag (g2) as instrumental variables. The weak instrument test shows an F-statistic of 395.554, significantly rejecting the null hypothesis of weak instruments at the 10% level, confirming the validity of the instrumental variables. These instrumental variables are chosen based on their correlation with the endogenous explanatory variable and their homogeneity to the model’s error term.

According to the IV-2SLS regression results in Table 5, the estimated coefficient for profitability sustainability is 0.039, significant at the 5% level, indicating a significant positive association between profitability sustainability and firm innovation, thus supporting hypothesis H3. After correction using the IV-2SLS method, the model’s chi-squared statistic is 47.59, indicating that the explanatory variables significantly explain the dependent variable at the 1% level. This demonstrates an improvement in the overall explanatory power of the model, verifying the reliability and validity of the research results.

In summary, by employing the IV-2SLS method, this study effectively addresses endogeneity issues and ensures the accuracy and reliability of the research results through the selection of appropriate instrumental variables. This provides strong empirical support for the analysis of the relationship between profitability sustainability and firm innovation.

4.3. Heterogeneity Analysis of the Impact of Profitability Sustainability on Firm Innovation in Dairy Companies

When exploring the relationship between profitability sustainability and firm innovation in dairy companies, the nature of ownership is an indispensable variable. Different ownership structures may lead companies to adopt varying strategies, thereby influencing their innovation activities. In particular, in China, state-owned and non-state-owned enterprises may exhibit different relationships between profitability sustainability and firm innovation due to their distinct ownership backgrounds and interests. Therefore, this section specifically compares the relationship between profitability sustainability and firm innovation in state-owned and non-state-owned dairy companies, conducting an in-depth heterogeneity analysis. The regression results for profitability sustainability and firm innovation by ownership type are presented in

Table 6. Regression Results of Profitability Sustainability and Corporate Innovation in Dairy Enterprises by Ownership Type.

Variable	Dependent Variable: INNO
	State-Owned Enterprises	Non-State-Owned Enterprises
SUS	−0.01 (0.009)	0.235 ** (0.102)
AGE	2.3 (2.944)	−0.46 (11.322)
SIZE	0.788 (0.877)	−4.267 (3.834)
DEBTAB	0.035 (0.023)	−0.006 ** (0.003)
CASH	0.026 (0.032)	−0.234 (0.178)
GROWTH	0.001 (0.003)	0.023 (0.015)
FIRMRD	−0.337 *** (0.115)	5.596 *** (0.612)
MARKET	−0.756 (0.556)	4.183 * (2.338)
SELL	0.283 (0.173)	−1.075 *** (0.240)
Constant	−19.595 (24.200)	41.696 (103.353)
Number of Observations	78	42
Goodness of Fit	0.131	0.460

Note: ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

.

According to the heterogeneity analysis results in Table 6, there are significant differences in the impact of profitability sustainability on firm innovation. The relationship between profitability sustainability (SUS) and firm innovation (INNO) is not significant for state-owned enterprises. This may be due to the relatively conservative and slow management decisions, resource allocation, and incentive mechanisms in state-owned companies, making it difficult for profitability sustainability to translate into firm innovation.

In contrast, for non-state-owned enterprises, the coefficient for profitability sustainability is 0.235, significant at the 5% level, indicating that profitability sustainability promotes firm innovation. This could be because non-state-owned companies typically have greater managerial flexibility, more effective resource allocation, a higher willingness to take risks, and more incentive measures, making it easier for profitability sustainability to translate into innovative activities.

These results reveal the differences in innovation drivers and strategies between state-owned and non-state-owned enterprises. Innovation activities in state-owned enterprises appear less dependent on profitability sustainability, while those in non-state-owned enterprises are significantly influenced by profitability sustainability. This finding is significant for understanding the differences in innovation strategies among different types of enterprises and provides a reference for policymakers and corporate managers when formulating innovation promotion strategies.

4.4. Moderation Effects Test

Building on the in-depth investigation of the relationship between profitability sustainability and firm innovation in listed dairy companies, this study further extends the analytical framework to explore how several potential moderating variables—corporate social responsibility (CSR), financing constraints (FC), and executive compensation (SAL)—affect this relationship. This extended analysis aims to reveal the characteristics of the relationship between profitability sustainability and firm innovation and deepen our understanding of how organizational and environmental factors influence this relationship. Specifically, moderation models were applied to test these effects, and the results are shown in

Table 7. Results of the Moderation Effects Test.

INNO	CSR	FC	SAL
	Coefficient	Coefficient	Coefficient
SUS	0.102 ** (0.044)	0.118 * (0.063)	0.27 *** (0.094)
CSR	22.498 (32.962)
SUS × CSR	−0.319 ** (0.157)
FC		1.659 (1.945)
SUS × FC		−0.078 * (0.044)
SAL			2.13 (2.178)
SUS×SAL			−0.028 *** (0.01)
AGE	−3.719 (4.533)	−5.51 (4.792)	−4.294 (4.456)
SIZE	−1.678 (1.953)	−2.229 (2.162)	−4.645 (3.023)
STATE	−5.098 (4.973)	−3.193 (5.424)	−3.591 (4.416)
DEBTAB	−0.004 * (0.002)	−0.003 (0.002)	−0.004 * (0.002)
CASH	−0.167 (0.128)	−0.138 (0.137)	−0.139 (0.104)
GROWTH	0.013 (0.008)	0.013 (0.009)	0.013 (0.008)
FIRMED	2.381 (1.555)	2.02 (1.467)	2.088 (1.472)
MARKET	2.221 * (1.235)	2.28 2 * (1.299)	1.957 * (1.023)
SELL	−0.623 * (0.345)	−0.524 (0.325)	−0.547 * (0.322)
Constant	27.044 (54.628)	44.088 (63.213)	84.748 (69.058)
Mean dependent var	3.431	3.431	3.431
SD dependent var	22.553	22.553	22.553

Note: ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

.

(1)

Analysis of the Moderating Effect of Corporate Social Responsibility

According to the regression analysis results in Table 7, the interaction term between profitability sustainability (SUS) and corporate social responsibility (CSR) (SUS×CSR) has a coefficient of −0.319, which is significant at the 5% level. This result indicates that CSR has a significant negative moderating effect on the relationship between profitability sustainability and firm innovation, supporting hypothesis H2. This implies that CSR has a notable negative moderating effect on innovation in dairy companies. In the dairy industry, excessive focus on CSR activities might divert resources from innovation to social responsibility projects, reducing innovation investment. However, in the long run, CSR can enhance a company’s reputation and market position, indirectly promoting innovation. Therefore, dairy companies need to find a balance between fulfilling social responsibilities and maintaining innovation momentum.

(2)

Analysis of the Moderating Effect of Financing Constraints

As shown in Table 7, the interaction term between financing constraints (FC) and profitability sustainability (SUS) (SUS × FC) has a coefficient of −0.078, significant at the 10% level. This result indicates that financing constraints have a significant negative moderating effect on the relationship between profitability sustainability and firm innovation, supporting hypothesis H3. Financing constraints significantly weaken the positive effect of profitability sustainability on innovation in dairy companies. Financial limitations make it difficult for dairy companies to bear the costs of R&D investment, especially when high upfront funding is needed. This is consistent with Hall’s (2002) findings that financing constraints are seen as a major obstacle to firm innovation. When companies cannot obtain sufficient external funding, they may have to sacrifice innovation investments to maintain daily operations [76]. Therefore, companies should seek innovative financing methods to alleviate financial pressure and maintain their innovation capabilities.

(3)

Analysis of the Moderating Effect of Executive Compensation

According to the regression results in Table 7, the interaction term between executive compensation (SAL) and profitability sustainability (SUS) (SUS × SAL) has a coefficient of −0.028, significant at the 1% level. This indicates that executive compensation has a significant negative moderating effect on the relationship between profitability sustainability and firm innovation, supporting hypothesis H4. In dairy companies, high executive compensation may absorb financial resources that could be used for innovation, thereby weakening the positive impact of profitability sustainability on innovation. This aligns with Jensen’s (1993) agency theory, which suggests that executive compensation structures may lead to short-term behavior bias, where executives prioritize short-term profitability over long-term innovation capability and sustained growth [77]. Therefore, when designing executive compensation, companies need to balance the compensation structure with innovation investment, ensuring that the compensation mechanism motivates executives to focus on the company’s long-term development while guaranteeing sufficient resources to support innovation activities, thereby promoting both financial health and innovation capability.

4.5. Joint Moderating Effects of Corporate Social Responsibility and Financing Constraints

Corporate social responsibility (CSR) and financing constraints (FC) each independently affect the relationship between profitability sustainability and firm innovation. However, research on their joint moderating effects remains sparse in the existing literature. In an environment that emphasizes CSR and is accompanied by stringent financing constraints, firms face dual challenges. The results of testing the joint moderating effects of CSR and FC on listed dairy companies are presented in

Table 8. Results of the Joint Moderating Effects of CSR and Financing Constraints.

INNO	Model (5)	Model (6)	Model (7)
	Coefficient	Coefficient	Coefficient
SUS	0.027 (0.018)	0.147 ** (0.065)	0.441 *** (0.150)
FC	1.647 (2.059)	1.176 (2.023)	−4.764 (7.772)
CSR	24.227 (33.798)	32.379 (33.578)	−56.617 (81.086)
SUS × FC			−0.297 *** (0.104)
SUS × CSR × FC		−0.49 ** (0.209)	0.898 ** (0.372)
SUS × CSR			−1.329 *** (0.434)
CSR × FC			66.78 (72.390)
AGE	−4.534 (4.654)	−4.216 (4.555)	−5.38 (4.993)
SIZE	−1.148 (2.008)	−2.713 (2.274)	−3.572 (2.671)
STATE	−3.475 (5.674)	−3.765 (5.660)	−3.806 (5.460)
DEBTAB	−0.004 (0.002)	−0.004 * (0.003)	−0.004 * (0.002)
CASH	−0.137 (0.143)	−0.149 (0.140)	−0.115 (0.117)
GROWTH	0.013 (0.008)	0.013 (0.008)	0.013 (0.009)
FIRMED	2.308 (1.539)	2.28 (1.494)	2.059 (1.463)
MARKET	2.124 (1.316)	2.119 (1.280)	2.063 * (1.186)
SELL	−0.581 * (0.343)	−0.559 * (0.328)	−0.444 (0.299)
Constant	14.813 (59.625)	47.91 (63.763)	78.562 (79.289)
Mean dependent var	3.431	3.431	3.431
SD dependent var	22.553	22.553	22.553

Note: ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

.

According to the estimation results of Model 6, the coefficient of the interaction term among profitability sustainability, CSR, and FC (SUS × CSR × FC) is −0.49, significant at the 5% level. It is known that financing constraints have a significant negative moderating effect on the relationship between profitability sustainability and firm innovation. This result reveals that when CSR is also considered, this moderating effect is influenced. Specifically, when considering the moderating effect of CSR on financing constraints alone, CSR further exacerbates the negative impact of financing constraints on the relationship between profitability sustainability and firm innovation. However, in Model 7, when a more comprehensive interaction among the three variables is considered, the coefficient of the three-way interaction term (SUS × CSR × FC) changes to 0.898, significant at the 5% level. This indicates that when firms face high CSR and financing constraints simultaneously, fully considering the intrinsic connections among these factors, their joint effect enhances the positive impact of profitability sustainability on firm innovation, confirming research hypothesis H6.

These results indicate that CSR and financing constraints play crucial moderating roles in the relationship between profitability sustainability and firm innovation. Financing constraints, as a potential limiting factor, inhibit a firm’s innovative capabilities. However, when a firm undertakes high CSR, this impact may be mitigated or even transformed into a positive effect, as such firms might place greater emphasis on innovation to fulfill their CSR goals. This joint moderating effect reveals a complex but realistic business phenomenon: in situations where financing constraints are particularly prominent, the positive role of CSR becomes more significant. It not only helps maintain and enhance the firm’s social image but may also stimulate more innovative activities. This valuable information is particularly beneficial for companies facing resource limitations yet aiming to foster innovation to stay competitive.

4.6. Joint Moderating Effects of Corporate Social Responsibility and Executive Compensation

Table 9. Results of the Joint Moderating Effects of CSR and Executive Compensation.

INNO	Model (5)	Model (6)	Model (7)
	Coefficient	Coefficient	Coefficient
SUS	0.028 * (0.016)	0.112 ** (0.047)	0.34 *** (0.084)
SAL	0.928 (1.878)	1.765 (2.039)	−0.145 (1.822)
CSR	19.102 (33.145)	26.971 (33.250)	−92.125 * (51.052)
SUS × SAL			−0.034 *** (0.009)
SUS × CSR × SAL		−0.044 ** (0.020)	0.067 * (0.038)
SUS × CSR			−0.682 * (0.352)
AGE	−4.984 (4.721)	−3.981 (4.625)	−9.039 (6.413)
SIZE	−1.616 (2.291)	−2.962 (2.517)	−4.326 (3.196)
STATE	−4.7 (4.810)	−4.618 (4.765)	−3.085 (4.305)
DEBTAB	−0.004 * (0.002)	−0.004 * (0.002)	−0.005 * (0.003)
CASH	−0.149 (0.118)	−0.143 (0.111)	−0.098 (0.087)
GROWTH	0.014 (0.008)	0.013 (0.008)	0.014 * (0.009)
FIRMED	2.283 (1.540)	2.388 (1.538)	2.285 (1.559)
MARKET	2.114 * (1.113)	1.871 * (1.026)	2.572 ** (1.208)
SELL	−0.599 * (0.342)	−0.608 * (0.339)	−0.524 (0.316)
Constant	25.05 (56.628)	46.283 (58.271)	95 (78.147)
Mean dependent var	3.431	3.431	3.431
SD dependent var	22.553	22.553	22.553

Note: ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

presents the results of the joint moderating effects of corporate social responsibility (CSR) and executive compensation (SAL) on the relationship between profitability sustainability (SUS) and firm innovation (INNO) in listed dairy companies.

According to the estimation results of Model 6, the coefficient of the triple interaction term among profitability sustainability, CSR, and executive compensation (SUS × CSR × SAL) is −0.044, significant at the 5% level. It is known that executive compensation has a significant negative moderating effect on the relationship between profitability sustainability and firm innovation. This indicates that when considering the moderating effect of CSR on executive compensation alone, CSR exacerbates the negative moderating effect of executive compensation on the relationship between profitability sustainability and firm innovation. However, in Model 7, when a more comprehensive interaction among profitability sustainability, CSR, and executive compensation is considered, the coefficient of the three-way interaction term (SUS × CSR × SAL) becomes 0.067, significant at the 10% level. This suggests that when firms simultaneously consider CSR and executive compensation, their joint effect strengthens the positive impact of profitability sustainability on firm innovation, confirming research hypothesis H7.

This may be because a high level of CSR motivates firms to focus more on long-term innovation investments, and a reasonable executive compensation mechanism can further promote this process. It also suggests that while pursuing CSR goals, firms should optimize their executive compensation structures to reward long-term innovation and sustainability objectives, thereby motivating executives to drive firm innovation. This finding provides important references for corporate managers and policymakers. While pursuing profitability sustainability, firms need to balance the undertaking of social responsibility and executive compensation strategies to ensure that both jointly promote firm innovation. This balance is crucial for ensuring the long-term competitiveness and sustainable development of firms.

In summary, in listed dairy companies, there is a significant joint moderating effect of CSR and executive compensation. This result has important theoretical and practical implications for guiding firms in formulating relevant policies, optimizing executive compensation structures, and enhancing CSR practices. It also enriches the theoretical research on the impacts of CSR and executive compensation on firm innovation and profitability sustainability.

4.7. Robustness Tests

(1)

Alternative Estimation Method

To validate the robustness of the baseline regression results, this study employs the System GMM (Generalized Method of Moments) estimation method. This approach effectively addresses potential endogeneity issues in dynamic panel data, enhancing the reliability of the estimation results. According to the estimation results presented in

Table 10. System GMM Estimation Results.

INNO		Coefficient
L.INNO		1.102 *** (0.141)
SUS		0.024 ** (0.012)
AGE		−10.477 (7.555)
SIZE		−0.95 (0.732)
DEBTAB		−0.005 *** (0.001)
CASH		−0.057 (0.073)
GROWTH		0.009 (0.006)
FIRMRD		1.554 *** (0.582)
MARKET		0.797 (6.209)
SELL		−1.15 * (0.658)
Constant		53.046 (58.239)
Mean dependent var	4.470	SD dependent var	24.255
Number of obs	100	Chi-square	5749.197

Note: ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses, same as below.

, there is a positive correlation between profitability sustainability (SUS) and firm innovation (INNO), with a coefficient of 0.024, significant at the 5% level. This confirms the robustness of the baseline regression results.

(2)

Truncated Regression Test

To further test the robustness of the model, this study also conducts a truncated regression test. This method helps mitigate the influence of “long tail” data, resulting in more accurate and reliable estimation results.

According to the truncated regression results in

Table 11. Truncated Regression Estimation Results.

INNO		Coefficient
SUS		0.036 ** (0.018)
AGE		−5.859 (4.282)
SIZE		−2.761 (2.173)
DEBTAB		−0.01 ** (0.005)
CASH		−0.206 (0.127)
GROWTH		0.012 * (0.007)
FIRMRD		1.983 (1.536)
MARKET		2.158 ** (1.067)
SELL		−0.556 * (0.335)
Constant		59.068 (58.596)
Mean dependent var	3.014	SD dependent var	18.350
R-squared	0.239	Number of obs	120
F-test	0.721	Prob > F	0.689
Akaike crit. (AIC)	1025.023	Bayesian crit. (BIC)	1052.898

Note: **, and * denote significance at the 5%, and 10% levels, respectively. Standard errors are in parentheses.

, the estimated coefficient for profitability sustainability (SUS) is 0.036, significant at the 5% level. This result is consistent with the findings from the baseline regression model and the System GMM model, further confirming the crucial role of profitability sustainability in promoting firm innovation activities.

5. Discussion

This study utilizes data from 20 publicly traded dairy companies listed on China’s A-share and H-share markets between 2016 and 2021 to deeply analyze the sustainability of profitability and its impact on corporate innovation, with a particular focus on the multiple moderating effects of corporate social responsibility (CSR). By employing mixed regression, IV-2SLS, and system GMM models, the results clearly demonstrate that profitability sustainability significantly promotes corporate innovation.

5.1. Theoretical Implications

This study expands the theoretical understanding of the complex relationship between profitability sustainability, CSR, and corporate innovation. Specifically, it finds that CSR, financing constraints, and executive compensation independently have a negative moderating effect on corporate innovation. However, the interaction between CSR and both financing constraints and executive compensation forms a positive joint moderating effect, thereby enhancing the positive impact of profitability sustainability on corporate innovation. Consistent with previous studies (e.g., Eccles et al., 2014 [28]; Mondal et al., 2023 [43]), the dual role of CSR in resource acquisition and reducing financial constraints to support innovation is further validated.

Additionally, this study reveals that executive compensation structures linked to CSR can enhance the positive impact of profitability sustainability on corporate innovation. Ikram et al. (2020) suggest that linking executive compensation to CSR can incentivize executives to drive innovation while fulfilling social responsibilities [53]. This finding aligns with the studies of Choi et al. (2021) [55] and Boubaker et al. (2018) [56], highlighting the critical role of executive compensation strategies in the relationship between CSR and innovation.

5.2. Practical Implications

From a practical standpoint, the findings suggest that dairy companies should strategically incorporate CSR into their business models to alleviate financing constraints and promote innovation. Managers should prioritize CSR activities that enhance public image and stakeholder trust, as these activities can improve financing conditions and reduce capital costs, thereby fostering sustained innovation efforts. This aligns with the recommendations of Le TT and Ferasso M (2022) [31], who emphasize the importance of CSR in attracting socially responsible investments and reducing financial barriers.

Moreover, policymakers should consider developing frameworks that support CSR activities and mitigate financing constraints, particularly for non-state-owned companies. These measures can help companies leverage the positive interplay between CSR, profitability sustainability, and innovation to enhance the dairy industry’s innovation and competitiveness. Specifically, linking executive compensation to CSR can strengthen the positive impact of profitability sustainability on corporate innovation, providing a new perspective for designing more effective compensation strategies.

5.3. Limitations and Future Research Directions

Despite the significant contributions of this study, there are some limitations. First, the sample size and scope are restricted; this study is based on data from 20 dairy companies covering the period from 2016 to 2021, which is a relatively small sample size and time frame. Future research should expand the sample size and scope to include more industries and regions and employ an extended period to verify the generalizability of the findings. Second, this study only considered linear relationships and did not account for nonlinear relationships, which may limit the understanding of complex interactions.

Future research directions include several key areas. First, increasing the sample size and scope to include more industries and regions will help verify the generalizability of the findings. Second, extending the time frame of the study will allow for the capture of more comprehensive trends and insights. Third, considering nonlinear relationships in future research will provide a more thorough understanding of the drivers of corporate innovation. By addressing these limitations and proposing these future research directions, the authors aim to provide a more comprehensive and in-depth understanding, while also offering valuable references for subsequent research.

6. Conclusions

This study highlights the critical role of profitability sustainability in promoting corporate innovation, particularly in the dairy industry. By utilizing data from 20 dairy companies listed on China’s A-share and H-share markets between 2016 and 2021, this research deeply analyzed the impact of profitability sustainability on corporate innovation, with a special focus on the multiple moderating effects of corporate social responsibility (CSR).

The results indicate that profitability sustainability significantly promotes corporate innovation. Notably, this study reveals the complex moderating roles of CSR, financing constraints, and executive compensation in this relationship. Although CSR directly negatively moderates the relationship between profitability sustainability and corporate innovation, its interaction with other negative moderating variables, such as financing constraints and executive compensation, generates a positive joint moderating effect. This interaction ultimately strengthens the relationship between profitability sustainability and corporate innovation.

From an economic perspective, stable profitability enables companies to continuously invest in research and development (R&D) and innovation, thereby enhancing market competitiveness and achieving long-term growth. This not only helps firms maintain their market positions but also promotes technological advancement and efficiency improvements across the industry, ultimately boosting the economic performance of the entire dairy sector.

From a social perspective, by fulfilling CSR, companies can enhance social welfare through innovation, including improving employee benefits, enhancing product quality, and reducing environmental pollution. These positive social impacts not only improve the company’s social image and reputation but also strengthen relationships with communities and stakeholders, further supporting the company’s sustainable development and long-term innovation goals.

By unveiling these interactions, this study provides a comprehensive understanding of the factors driving innovation and offers practical recommendations on how to leverage profitability sustainability and CSR to achieve long-term competitive advantages and sustainable growth. Future research should build on these insights to further explore the dynamic relationships among these key variables across different contexts and industries.