Influence of share pledging on corporate social responsibility: Evidence from India

The paper examines Indian firms from 2009 to 2022 to determine whether and how share-pledging (SP) influences corporate social responsibility (CSR) expenditure. The findings reveal that SP had a detrimental impact on CSR, indicating short-sighted, shareholder-centric corporate behavior. The result remains robust across alternative measures, sub-samples, estimation methods, and after accounting for endogeneity. A deeper analysis uncovered channel-specific and context-specific nuances. When examining the risk management channel, it was found that the negative influence of SP on CSR was mitigated in firms facing financial constraints or downward price pressure, the conditions that heighten SP-induced margin call risks and make CSR’s risk management benefits critically valuable. The robustness of the results, further tested in high-risk contexts such as high-earnings volatility and high-polluting industries, confirms firm-specific contingencies that can lead SP firms to value CSR more and to be less concerned about its short-term adverse effects on profit. These findings indicate resource-based strategic, signaling, and reputational-insurance use of CSR, grounded in the stakeholder perspective. In contrast, when examining business group firms with low cash flow rights and tunneling, the conditions reflecting high potential and actual agency costs, the study found the negative influence of SP on CSR to be amplified. This evidence confirms firm-specific conditions that make SP-firm prioritize tunneling over the allocation of resources for CSR, thereby validating the agency cost channel of SP’s influence. The study enriches both CSR and SP literature with nuanced findings that have practical relevance for regulators, investors, managers and those responsible for corporate governance.