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Is 2% the Solution? Experimental Evidence on the New CSR Rule in India

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  • Desai, Naman
  • Pingali, Viswanath
  • Tripathy, Arindam

Abstract

The Indian government became the first regulator in the world to mandate a minimum CSR spending on certain specified social welfare activities. Prior research in psychology indicates that individuals tend to focus heavily (Anchor) on the initial information or estimate in a decision making context. Therefore, we conduct two experiments to examine the role of the 2% minimum CSR spending limit as an anchor. The first experiment was conducted to establish the effects of anchoring on decisions related to charitable giving. The results of this experiment indicate that participants’ charitable contribution was significantly higher in the treatment where no minimum limit was stipulated compared to the treatment where a minimum limit was stipulated. This result suggests that participants did anchor on the minimum stipulated limit while deciding on the amount of charitable contribution. The second experiment was conducted to examine if anchoring specifically affected CSR spending decisions. The results of the experiment indicated that the amount of reported CSR spending was lower when the minimum 2% rule was imposed versus when it was not imposed. Additionally, the results also indicate that when the 2% rule was not imposed the participants appeared to anchor on the overall financial requirement of the CSR activity and decided to spend more or less depending on the financial requirement of the CSR activity.

Suggested Citation

  • Desai, Naman & Pingali, Viswanath & Tripathy, Arindam, 2015. "Is 2% the Solution? Experimental Evidence on the New CSR Rule in India," IIMA Working Papers WP2015-03-09, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:13316
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    References listed on IDEAS

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    Cited by:

    1. Manfred Max Bergman & Zinette Bergman & Yael Teschemacher & Bimal Arora & Divya Jyoti & Rijit Sengupta, 2019. "Corporate Responsibility in India: Academic Perspectives on the Companies Act 2013," Sustainability, MDPI, vol. 11(21), pages 1-20, October.
    2. Deodhar, Satish Y., 2015. "India’s Mandatory CSR, Process of Compliance and Channels of Spending," IIMA Working Papers WP2015-05-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Abhishek Mukherjee & Ron Bird, 2016. "Analysis of mandatory CSR expenditure in India: a survey," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 7(1), pages 32-59.
    4. P. Kavitha, 2019. "Trends and Patterns of Corporate Social Responsibility Expenditure: A Study of Manufacturing Firms in India," Working Papers id:12995, eSocialSciences.
    5. Satish Y. Deodhar, 2016. "Trapping India’s CSR in a Legal Net: Will the Mandatory Trusteeship Contribute to Triple Bottom Line?," Vikalpa: The Journal for Decision Makers, , vol. 41(4), pages 267-274, December.

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