Corporate social responsibility disclosure quality and the agency problem: Evidence from a mandatory disclosure setting

This study investigates how corporate social responsibility (CSR) disclosures affect agency costs in India, an emerging economy. The Indian Companies Act of 2013, which mandates CSR disclosures, provides a unique context for this analysis. The research examines how mandatory CSR disclosure regime influences firm characteristics, such as operating profit and sales revenue. It also explores the role of CSR disclosures in reducing agency costs under both voluntary and mandatory regimes. The findings indicate that higher quality CSR disclosures are related to lower agency costs, with this effect being more pronounced under the mandatory disclosure regime. Additionally, firms that spend more on CSR tend to provide better quality disclosures under mandatory requirements compared to voluntary ones. Superior CSR disclosure quality also enhances operational metrics, especially sales revenue and operating performance, under the mandatory disclosure regime. The study contributes valuable insights to the ongoing CSR disclosure debate, shedding light on both mandatory and voluntary disclosure regimes, and offers a novel agency-focused perspective on the influence of CSR disclosures on firm operations through signaling mechanisms.