*5.1. CSR-Improving Effect*

First, we explored whether the CSR-improving effect was dominant in the impact of MSER on firm innovation. An extensive body of literature has investigated the impact of CSR on corporate innovation, and most studies showed that CSR performance could facilitate firm innovation output [11,20]. For example, ref. [20] analyzed panel data collected from firms in the S&P 500 and revealed that the improvement in corporate social performance was able to prompt firm innovation. Ref. [11] found that stakeholder orientation that increased firms' CSR performance sparked innovation by encouraging experimentation (i.e., more tolerance of employees' failures) and enhancing employees' innovative productivity. In addition, ref. [12] demonstrated that firms with higher CSR performance (e.g., better employee treatment schemes) produced more and better patents by improving employee satisfaction and teamwork. Accordingly, the increase in innovation for the treatment firms after the MSER were implemented may have been caused by the improvement in CSR performance.

To test this conjecture, we collected the CSR performance data from the Environmental, Social, and Governance (ESG) database of Bloomberg. The ESG dataset of Bloomberg offers ESG metrics and disclosure scores for more than 11,800 firms in over 100 countries. The ESG data are compiled based on company-sourced filings, such as CSR or sustainability reports, annual reports, company websites, online news, and a Bloomberg survey that requests information directly from the company. We used the rating scores of firms in

the Bloomberg ESG database to measure the firms' CSR performance. If this conjecture is valid, the CSR performance of the treatment firms should show a significant increase after the regulations compared with the control firms. The results are reported in Table 8. As shown in column 1 in Table 8, the coefficient of the interaction term *Treated* × *Post* was positive and statistically significant. This indicates that the CSR performance of the treatment firms increased significantly, thus supporting the *CSR-improving effect*. Therefore, the impact of MSER on firm innovation was partially derived from the improvement in CSR performance.


**Table 8.** Mechanism Analyses.

Note. This table reports the estimated coefficients and heteroskedasticity-adjusted robust standard errors clustered at the firm level (in parentheses). Significance at \* *p* < 0.1; \*\* *p* < 0.05; \*\*\* *p* < 0.01.
