Institutional ownership and violations of mandatory CSR regulation

Abstract

India is one of the very few national jurisdictions to introduce a regulation mandating spending on corporate social responsibility (CSR) activities. Although the directive has increased CSR spending significantly, it has experienced a widespread noncompliance. This paper examines the effect of institutional ownership on the likelihood of violations of the mandatory CSR regulation. Using a sample of over 4000 firm-year observations, we find that an increase in institutional ownership significantly increases firms’ compliance with the mandatory CSR expenditure requirement. This result is robust to the alternative definitions of mandatory CSR violations, alternative model estimation approaches, addressing endogeneity and reverse causality biases and controlling for firms’ group affiliation, and ownership of foreign investors and government.