Abstract: This study investigates how business strategy moderates the effect of Corporate Social Responsibility (CSR) on over-investment. We provide new evidence on the moderating effect of business strategy between CSR and overinvestment. Using a sample of over 3000 US firms with 14,375 observations for the period 1996–2016, we show that high CSR involvement firms tend to over-invest. We demonstrate that both Defend and Prospect strategies can mitigate over-investment by interacting with high CSR firms. The Defend strategy effect on over-investment CSR firms is more pronounced for non-immorality stressed and non-high tech industry firms. We find that the strategy's moderating effect is channeled through agency problems and information asymmetry. The results show that business strategy plays an important role in shaping firms' investment behavior and efficiency.

Keywords: Corporate social responsibility; Investment efficiency; Business strategy; Moderating effect