Abstract
Corporate social responsibility, traditionally conceptualized as a voluntary construct, has been difficult to institutionalize in many countries where its prescriptions are at odds with prevailing norms about appropriate role of business in a society. To overcome this challenge, governments intervene through regulatory measures to mainstream and institutionalize CSR but the effect of such measures on a firm's value is not understood. The present paper addresses this gap by exploiting a quasi-natural experimental setting in India. Using a regression discontinuity design (RDD) on a sample of 1729 firms, this paper offers causal evidence for the positive stock market reaction to a flexible CSR regulation in India. The positive reaction was stronger for foreign firms and weaker for firms in environmentally high impact sectors.
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