Mandatory CSR spending, ESG and firm performance: evidence from Bombay stock exchange

Abstract

PurposeThe study attempts to examine the impact of mandatory corporate social responsibility (CSR) spending and inclusion of firms into the environment, social and governance (ESG) index of BSE India on the performance of firms constituting firms under the Bombay Stock Exchange (BSE) 100 Index.Design/methodology/approachThe stock prices of the firms were collected from the official website of BSE India for a total of 32 firms and the System Generalized Method of Moments (GMM) model was utilized for analyzing the data for the present study.FindingsThe study found that the investors in the Indian market do consider the CSR spending and ESG listing as a factor while framing the investment strategy; however, ESG listing is least preferred. Among the other variables, AGE, DPS, EPS and BVPS have a significant positive bearing on the firm's performance, while SIZE has a significant negative impact on the firm's performance.Research limitations/implicationsFurther investigation is needed to understand the factors that influence investment decision-making, including why investors tend to overlook CSR and environmental protection. Future research can identify ways to increase the importance of these factors in investment decision-making. Future research can explore the long-term impact of investing in socially responsible companies, including whether such investments lead to better long-term performance.Practical implicationsThere is a need for increased awareness of the importance of CSR among investors. Educational programs and campaigns can be used to inform investors about the potential benefits of considering social responsibility factors in investment decision-making. Companies that prioritize CSR and environmental protection should distinguish themselves from competitors in the eyes of investors. This can lead to higher investment and potentially higher returns for these companies.Originality/valueSince mandatory CSR expenditure and the launch of the ESG index by the BSE have been introduced in India recently, hardly any study in India has examined the impact of the same on the firm's performance.