IDEAS home Printed from https://ideas.repec.org/p/iik/wpaper/317.html
   My bibliography  Save this paper

Corporate Social Responsibility and Firm Performance: Indian Evidence

Author

Listed:
  • Sudershan Kuntluru

    (Indian Institute of Management, Kozhikode)

Abstract

With effect from 1 April 2014, India’s new Companies Act 2013 makes it mandatory for certain firms to spend a certain minimum amount on Corporate Social Responsibility (CSR) activities. In this study, the impact of mandatory CSR spending on firm performance is examined based on the data for 1460 firm years for the period 2015 to 2018. It is hypothesized that CSR spending has a positive impact on firm performance measured in terms of ROA and ROE. Logit and Probit models are used to estimate the impact of CSR on performance of firms. Contrary to the expectations, the empirical results show that CSR spending has negative impact on performance (ROA/ROE) subsequent to the CSR spending made mandatory in India. It implies that the mandatory CSR spending targets are at the expense of shareholders returns. The findings are useful to regulators, managers and investors.

Suggested Citation

  • Sudershan Kuntluru, 2019. "Corporate Social Responsibility and Firm Performance: Indian Evidence," Working papers 317, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:317
    as

    Download full text from publisher

    File URL: https://iimk.ac.in/websiteadmin/FacultyPublications/Working%20Papers/3055Sudershan%20Kuntluru-WorkingPaper-Corporate%20Social%20Responsibility-to%20office.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jiraporn, Pornsit & Miller, Gary A. & Yoon, Soon Suk & Kim, Young S., 2008. "Is earnings management opportunistic or beneficial? An agency theory perspective," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 622-634, June.
    2. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    3. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    6. Kansal, Monika & Joshi, Mahesh & Batra, Gurdip Singh, 2014. "Determinants of corporate social responsibility disclosures: Evidence from India," Advances in accounting, Elsevier, vol. 30(1), pages 217-229.
    7. Supriti Mishra & Damodar Suar, 2010. "Does Corporate Social Responsibility Influence Firm Performance of Indian Companies?," Journal of Business Ethics, Springer, vol. 95(4), pages 571-601, September.
    8. Neeti Khetarpal Sanan, 2018. "Influence of board characteristics on CSR: a study of Indian firms," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 9(3), pages 300-315.
    9. Abagail McWilliams & Donald Siegel, 2000. "Corporate social responsibility and financial performance: correlation or misspecification?," Strategic Management Journal, Wiley Blackwell, vol. 21(5), pages 603-609, May.
    10. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    11. Jayati Sarkar & Subrata Sarkar, 2015. "Corporate social responsibility in India - An Effort to bridge the welfare gap," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    12. Hsiang-Lin Chih & Chung-Hua Shen & Feng-Ching Kang, 2008. "Corporate Social Responsibility, Investor Protection, and Earnings Management: Some International Evidence," Journal of Business Ethics, Springer, vol. 79(1), pages 179-198, April.
    13. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    14. Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
    15. Peter Wright & Stephen P. Ferris, 1997. "Agency Conflict And Corporate Strategy: The Effect Of Divestment On Corporate Value," Strategic Management Journal, Wiley Blackwell, vol. 18(1), pages 77-83, January.
    16. Mukherjee, Abhishek & Bird, Ron & Duppati, Geeta, 2018. "Mandatory Corporate Social Responsibility: The Indian experience," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 254-265.
    17. Bozzolan, Saverio & Fabrizi, Michele & Mallin, Christine A. & Michelon, Giovanna, 2015. "Corporate Social Responsibility and Earnings Quality: International Evidence," The International Journal of Accounting, Elsevier, vol. 50(4), pages 361-396.
    18. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    19. Waris Ali & Jedrzej George Frynas & Zeeshan Mahmood, 2017. "Determinants of Corporate Social Responsibility (CSR) Disclosure in Developed and Developing Countries: A Literature Review," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 24(4), pages 273-294, July.
    20. Vijaya Murthy, 2008. "Corporate Social Disclosure Practices of Top Software Firms in India," Global Business Review, International Management Institute, vol. 9(2), pages 173-188, August.
    21. Stephen Brammer & Chris Brooks & Stephen Pavelin, 2006. "Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures," Financial Management, Financial Management Association International, vol. 35(3), pages 97-116, September.
    22. Henri Servaes & Ane Tamayo, 2013. "The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness," Management Science, INFORMS, vol. 59(5), pages 1045-1061, May.
    23. Diego Prior & Jordi Surroca & Josep A. Tribó, 2008. "Are Socially Responsible Managers Really Ethical? Exploring the Relationship Between Earnings Management and Corporate Social Responsibility," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 160-177, May.
    24. Gorm Gabrielsen & Jeffrey D. Gramlich & Thomas Plenborg, 2002. "Managerial Ownership, Information Content of Earnings, and Discretionary Accruals in a Non-US Setting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7&8), pages 967-988.
    25. 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.
    26. Warfield, Terry D. & Wild, John J. & Wild, Kenneth L., 1995. "Managerial ownership, accounting choices, and informativeness of earnings," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 61-91, July.
    27. Jayati Sarkar & Subrata Sarkar, 2015. "Corporate Social Responsibility in India—An Effort to Bridge the Welfare Gap," Review of Market Integration, India Development Foundation, vol. 7(1), pages 1-36, April.
    28. Tarun Khanna & Krishna Palepu, 2005. "The Evolution of Concentrated Ownership in India: Broad Patterns and a History of the Indian Software Industry," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 283-324, National Bureau of Economic Research, Inc.
    29. Kee‐Hong Bae & Jun‐Koo Kang & Jin‐Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
    30. Yongtao Hong & Margaret Andersen, 2011. "The Relationship Between Corporate Social Responsibility and Earnings Management: An Exploratory Study," Journal of Business Ethics, Springer, vol. 104(4), pages 461-471, December.
    31. Alan Gregory & Rajesh Tharyan & Julie Whittaker, 2014. "Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow, Risk and Growth," Journal of Business Ethics, Springer, vol. 124(4), pages 633-657, November.
    32. Bimal Arora & Ravi Puranik, 2004. "A Review of Corporate Social Responsibility in India," Development, Palgrave Macmillan;Society for International Deveopment, vol. 47(3), pages 93-100, September.
    33. Pratima Bansal, 2005. "Evolving sustainably: a longitudinal study of corporate sustainable development," Strategic Management Journal, Wiley Blackwell, vol. 26(3), pages 197-218, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. GUPTA Pradeep Kumar & GARG Arunesh, 2022. "Impact Of Csr Expenditure Compliance On Firm Value Using P/B-Roe Valuation Model And Instrumental Approach," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 17(2), pages 108-123, August.
    2. George, Ann K. & Kayal, Parthajit & Maiti, Moinak, 2023. "Nexus of Corporate Social Responsibility Expenditure (CSR) and financial performance: Indian banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 190-200.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sudershan Kuntluru, 2019. "Corporate Social Responsibility and Firm Performance: Indian Evidence," Working papers 332, Indian Institute of Management Kozhikode.
    2. Samuel Buertey & Eun‐Jung Sun & Jang Soon Lee & Juhee Hwang, 2020. "Corporate social responsibility and earnings management: The moderating effect of corporate governance mechanisms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(1), pages 256-271, January.
    3. Giovanna Gavana & Pietro Gottardo & Anna Maria Moisello, 2022. "Related Party Transactions and Earnings Management: The Moderating Effect of ESG Performance," Sustainability, MDPI, vol. 14(10), pages 1-21, May.
    4. Bhattacharyya, Asit & Rahman, Md Lutfur, 2019. "Mandatory CSR expenditure and firm performance," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(3).
    5. Aggarwal, Raj & Jindal, Varun & Seth, Rama, 2019. "Board diversity and firm performance: The role of business group affiliation," International Business Review, Elsevier, vol. 28(6), pages 1-1.
    6. Minghui Yang & Yan Wang & Lu Bai & Petra Maresova, 2023. "Corporate social responsibility, family involvement, and stock price crash risk," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(3), pages 1204-1225, May.
    7. Sumon Kumar Bhaumik & Andros Gregoriou, 2010. "‘Family’ Ownership, Tunnelling And Earnings Management: A Review Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 24(4), pages 705-730, September.
    8. Habiba Al‐Shaer, 2020. "Sustainability reporting quality and post‐audit financial reporting quality: Empirical evidence from the UK," Business Strategy and the Environment, Wiley Blackwell, vol. 29(6), pages 2355-2373, September.
    9. Martínez-Ferrero, Jennifer & Prado-Lorenzo, José Manuel & Fernández-Fernández, José Miguel, 2013. "Responsabilidad social corporativa vs. responsabilidad contable," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 16(1), pages 32-45.
    10. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195.
    11. Fuxiu Jiang & Kenneth A Kim, 2020. "Corporate Governance in China: A Survey [The role of boards of directors in corporate governance: a conceptual framework and survey]," Review of Finance, European Finance Association, vol. 24(4), pages 733-772.
    12. Ali Meftah Gerged & Khaldoon Albitar & Lara Al‐Haddad, 2023. "Corporate environmental disclosure and earnings management—The moderating role of corporate governance structures," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2789-2810, July.
    13. Buchanan, Bonnie G. & Cao, Cathy Xuying & Wang, Shuhui, 2021. "Corporate social responsibility and inside debt: The long game," International Review of Financial Analysis, Elsevier, vol. 78(C).
    14. Kang, Hyung Cheol & Anderson, Robert M. & Eom, Kyong Shik & Kang, Sang Koo, 2017. "Controlling shareholders' value, long-run firm value and short-term performance," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 340-353.
    15. Kwang Hwa Jeong & Seok Woo Jeong & Woo Jae Lee & Seong Ho Bae, 2018. "Permanency of CSR Activities and Firm Value," Journal of Business Ethics, Springer, vol. 152(1), pages 207-223, September.
    16. Bona-Sánchez, Carolina & Pérez-Alemán, Jerónimo & Santana-Martin, Domingo J., 2017. "Sustainability disclosure, dominant owners and earnings informativeness," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 625-639.
    17. Ni, Xiaoran, 2020. "Does stakeholder orientation matter for earnings management: Evidence from non-shareholder constituency statutes," Journal of Corporate Finance, Elsevier, vol. 62(C).
    18. Jesus Sáenz González & Emma García-Meca, 2014. "Does Corporate Governance Influence Earnings Management in Latin American Markets?," Journal of Business Ethics, Springer, vol. 121(3), pages 419-440, May.
    19. Bert Scholtens & Feng‐Ching Kang, 2013. "Corporate Social Responsibility and Earnings Management: Evidence from Asian Economies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 20(2), pages 95-112, March.
    20. Xin Huang & Xianling Jiang & Wei Liu & Qian Chen, 2021. "Business Group-Affiliation and Corporate Social Responsibility: Evidence from Listed Companies in China," Sustainability, MDPI, vol. 13(4), pages 1-21, February.

    More about this item

    Keywords

    Firm performance; Corporate Social Responsibility; Mandatory CSR; India;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iik:wpaper:317. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sudheesh Kumar (email available below). General contact details of provider: https://edirc.repec.org/data/iikmmin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.