Corporate social responsibility, business groups and financial performance: a study of listed Indian firms

Woo Sung Kim,Sekyung Oh

doi:10.1080/1331677x.2019.1637764

Woo Sung Kim, Sekyung Oh

Open Access

https://doi.org/10.1080/1331677x.2019.1637764

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Abstract

This study explores the relationship between corporate social responsibility (C.S.R.) and financial performance of Indian firms. We also examine the relationship between C.S.R. and financial performance in context of Indian business group firms, which are known to have unique characteristics which differ from those of Indian stand-alone firms. Using a sample of Indian listed firms between 2010 and 2015, we find that C.S.R., as measured by E.S.G. disclosure score, has a U-shaped relationship with Tobin’s Q, supporting the slack resource theory at lower level of CSR and supporting the stakeholder theory at higher level of C.S.R. The empirical results imply that an improvement in CSR actions does not always result in higher firm value but should exceed a certain level of C.S.R. to have a positive effect on firm value. In addition, we find that at lower level, a negative relationship between C.S.R. and Tobin’s Q weakens in group affiliate firms. However, this complement effect of business group disappears at higher level, weakening the positive relationship between C.S.R. and Tobin’s Q. This study offers new insights for the different influence of business groups on C.S.R. performance.

Highlights

Of late, corporate social responsibility (C.S.R.) has been considered a very important factor in management
This study explores the relationship between corporate social responsibility (C.S.R.) and financial performance of Indian firms
We examine the relationship between C.S.R. and financial performance in context of Indian business group firms, which are known to have unique characteristics which differ from those of Indian stand-alone firms

Summary

Introduction

Corporate social responsibility (C.S.R.) has been considered a very important factor in management. From the viewpoint of shareholder, the issue is whether C.S.R. may serve to enhance corporate financial performance. In this context, the relationship between C.S.R. and firm performance has been explored by many authors (Waddock & Graves, 1997; Griffin & Mahon, 1997; Lin, Yang, & Liou, 2009; Saeidi, Sofian, Saeidi, Saeidi, & Saaeidi, 2015). While one strand of literatures suggests that C.S.R. has a positive impact on firm performance (Oeyono, Samy, & Bampton, 2011), another strand shows that C.S.R. has a negative impact on firm performance (Servaes & Tamayo, 2013).

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