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Does CSR Regulation affect Financial Policy: A Quasi-Natural Experiment Approach

Author

Listed:
  • Nemiraja Jadiyappa

    (Indian Institute of Management Kozhikode)

  • Mrunal Chavda

    (Indian Institute of Management Raipur)

Abstract

This study examines how mandatory CSR spending regulation implemented in India in 2014 impacted the financial policy of corporate firms in a quasi-natural experiment setup. The analysis shows that the debt level of treated firms decreased significantly following the CSR regulation; however, no corresponding change was observed in control firms. This decrease in debt can be attributed to the greater value that the equity of such firms commanded in capital markets following the regulation. Further, we show that this positive change in the relative importance of equity compared to debt in the post-regulation period helped firms move toward their target capital structure faster. These results remain robust for various model specifications, estimators, and sample selection procedures. Overall, these results conform to the predictions of the stakeholder and legitimacy based theories on CSR.

Suggested Citation

  • Nemiraja Jadiyappa & Mrunal Chavda, 2023. "Does CSR Regulation affect Financial Policy: A Quasi-Natural Experiment Approach," Working papers 574, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:574
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    References listed on IDEAS

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