Mandatory Corporate Social Responsibility Research Articles

Do CSR practices affect perceived market performance through compliance status? Evidence from a quasi-natural experiment in India

PurposeThe study examines the impact of corporate social responsibility (CSR) non-compliance on firm value. It also investigates the moderating roles of ownership concentration and research and development (R&D) intensity in this relationship.Design/methodology/approachFor hypothesis testing, the authors utilized panel data regression models on a dataset comprising 13,760 firm-years listed on the Bombay Stock Exchange, covering a period of nine years following the legislation (from March 2015 to March 2023).FindingsOur findings reveal a detrimental effect of mandatory CSR spending on the value of non-compliance firms, consistent with the notion of deterrence theory. Further, we find that the negative impact is more pronounced among widely-held firms compared to closely-held firms, aligning with shareholder activism and information asymmetry theory. Our subsequent tests indicate that R&D intensity mitigates the negative impact, indicating a substitution relationship between CSR and R&D expenditure. Consistent with this finding, we find a lesser negative impact of CSR non-compliance on firm value of widely-held R&D intensified firms. Our findings are robust to the problem of endogeneity and self-selection bias.Practical implicationsOur findings highlight practical implications for managers regarding performance management. Managers should recognize that mandatory CSR spending can negatively impact performance, especially in widely-held firms, leading to shareholder dissatisfaction. To mitigate these effects, increasing R&D investment is likely to buffer against the adverse impacts of CSR mandates. Firm managers should align R&D efforts with CSR obligations to counterbalance costs and manage shareholder expectations, thereby maintaining performance and enhancing the perception of innovation among stakeholders.Originality/valueIt is the first study to consider the degree of compliance within firms while examining the impact of mandatory CSR spending on firm value. Also, the study is among pioneer attempts to investigate the moderating role of ownership structure and R&D intensity on the relationship.

Corporate social responsibility and stock price informativeness: evidence from the global banking industry

ABSTRACT This study explores the impact of corporate social responsibility (CSR) performance on stock price informativeness (SPI) in the global banking industry. Drawing on a dataset of 217 banks from 45 countries between 2009 and 2020, we find that CSR performance significantly enhances SPI by ensuring that more bank-specific information is reflected in stock prices. These results align with signalling theory, which suggests that CSR performance reduces information asymmetry by signalling a firm’s commitment to long-term sustainability and ethical practices, thereby improving market efficiency. The effect is stronger in countries with mandatory CSR disclosure regulations, underscoring the role of regulatory frameworks in amplifying the benefits of CSR activities. Furthermore, we find that the relationship between CSR performance and SPI is more pronounced in investment banks than in commercial banks, reflecting the greater market sensitivity to CSR performance in institutions with higher risk profiles. Our findings provide evidence of a critical link between CSR performance and improved market transparency, highlighting the role of CSR initiatives in fostering more accurate stock price reflections.

Revisiting tokenism: impact of gender diversity on corporate social performance of Indian companies

PurposeThis study aims to examine the relationship between corporate governance, in particular board diversity, and corporate social performance (CSP) amongst the top 500 listed companies in India.Design/methodology/approachData from the top 500 listed Indian companies constituting the BSE500 index for a five-year period from 1 April 2014 to 31 March 2019 are used to test the impact of the proportion of women directors, proportion of women independent directors, female CEOs and other corporate governance variables on CSP.FindingsThe results of panel regression analysis suggest that firms characterised by high proportions of women directors, independent women directors or a female CEO spend more on corporate social responsibility (CSR) activities. Furthermore, CEO duality, board size and board independence are positively related to social performance. These findings are of relevance to the policymakers and board of directors who are engaged in meeting corporate governance requirements.Practical implicationsThis is one of the initial studies to document the impact of executive-level female representation on CSP following India's 2013 regulations on mandatory women representation on boards and CSR expenditure. The study reveals that greater gender diversity on corporate boards significantly boosts CSP, offering strategic advantages in governance and CSR. The study offers practical benefits for various stakeholders including corporate regulators, policymakers and corporate managers.Originality/valueThe paper contributes to the corporate governance and CSR literature by showing that good governance practices and high women representation on boards promote social performance. Our study is one of the preliminary efforts to document the level and impact of female representation at the executive level on CSP after the regulation of minimum women representation on corporate boards and mandatory CSR expenditure requirement introduced in India in 2013.

Corporate social responsibility and energy efficiency: Empirical evidence from the manufacturing sector of India

AbstractThe strategic business firm manages today's profitability and tomorrow's sustainability to achieve a comparative advantage in the emerging market economy. Considering India's ambitious emission reduction target and rapid economic development, this study explores the potential relationship between corporate social responsibility (CSR) and the energy efficiency of manufacturing firms in India. Using firm‐level data, the panel fixed effects model shows that CSR negatively explains energy intensity (EI). We observed a consistent negative relationship between CSR and EI for all models, with and without controlled firm‐specific variables. Firms that manufacture chemical and chemical products, pharmaceuticals, medical chemicals and botanical products are energy intensive without CSR; however, CSR activities helped these firms become energy efficient. Our result confirms that voluntary CSR is less efficient than mandatory CSR in contributing to environmental and energy‐related indicators at the firm level. Our empirical results indicate several policy implications: (1) CSR should also focus on sustainable business models related to energy efficiency and reduction in carbon emissions; (2) firms should be encouraged to use CSR related to environmentally friendly innovations. We conclude that CSR spending and environmental expenses will increase energy efficiency at the firm level, which will help achieve net‐zero targets and sustainable industrial development.

Can Catering to Local Area Needs Through CSR Reduce Firm Risk?

ABSTRACTThis paper examines the effect of corporate social responsibility (CSR) spending to cater to the local area's needs (the area of business operations) in reducing the firm's risk in the mandatory CSR setting. Using a sample of 1677 Indian firms spanning the financial year 2009–2022, we present several interesting results. First, we demonstrate that the risk of the firms eligible under mandatory CSR law is higher than those not qualifying. Second, we find that the risk of firms that focus their CSR on the local area's needs is lower. In an additional analysis, we demonstrate that firms with higher spending on the local area experience lower contingent liability, legal expenses, and audit fees. We illustrate that focusing on the local area's needs in CSR efforts retains signaling value under a mandatory CSR regime.

Do Good, Have Good: Mandatory CSR Policy and Foreign Subsidiary Performance in India

In 2013, the Companies Act in India mandated that foreign subsidiaries with specified profitability and size spend at least 2% of their net income on corporate social responsibility (CSR). The study uses this natural experiment to isolate the impact of CSR spending on multinational enterprise (MNE) subsidiary performance. Using a triple difference estimation method on 175 foreign subsidiaries from 2005 to 2020, this study finds a positive impact of the compulsory CSR regulation on the CSR spender subsidiaries. We also find that higher institutional distance and greater subsidiary age benefit affected subsidiaries, positively impacting their performance because of mandatory CSR spending. The findings offer suitable recommendations for managers and policymakers in emerging markets as navigating regulatory CSR policies in the host country requires considering both resource-based and institutional environment factors.

Corporate Social Responsibility and Financial Risk: Exploring Default Risk in Indian Firms

This paper examines the impact of corporate social responsibility (CSR) expenditure on default risk for Indian firms during the period from 2015 to 2021. Using distance to default (DTD) and probability of default (PD) at different time horizons as proxies for default risk, we find that CSR expenditure is negatively related to default risk. This indicates that CSR engagement enhances a firm’s reputation and financial stability, thereby reducing the likelihood of default. Surprisingly, we find that this relationship is less pronounced for group-affiliated firms, as stand-alone firms rely more on CSR to establish market credibility. Our findings highlight the strategic importance of CSR compliance, emphasizing its role in risk management and financial resilience. Our study provides insights for policymakers and managers in emerging economies, underscoring how mandatory CSR can foster a more sustainable and risk-averse corporate environment, particularly for firms without the support of business group affiliation.© 2024 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.

Going out by doing good: The effect of mandatory CSR disclosure on outward FDI of Chinese firms

AbstractThis study examines the effect of mandatory corporate social responsibility (CSR) disclosure on outward foreign direct investment (OFDI) of Chinese listed firms. We address potential endogeneity concerns by employing propensity score matching (PSM) and difference‐in‐differences (DID) methods. Our analysis reveals that firms subject to mandatory CSR disclosure exhibit a significantly higher propensity to engage in OFDI and undertake a greater number of OFDI projects. This positive effect is particularly pronounced for specific sub‐samples of firms: highly polluting, non‐state owned, relatively large and those targeting developed economies for investment. Further investigation into the underlying mechanisms suggests that disclosing CSR information facilitates OFDI primarily by enhancing innovation capabilities, alleviating financial constraints and mitigating the liability of foreignness.

Can enhanced CSR quality reduce the cost of debt capital? An empirical analysis of CEO expertise and non-financial reporting practices in China

This study aims to investigate whether stockholders and creditors place a positive value on corporate social responsibility (CSR) information disclosure when making decisions about providing financing to firms, thereby influencing their investment choices. Utilizing data from the China Stock Market & Accounting Research Database (CSMAR) and HEXUN, the study analyzes CSR disclosures and financial data of 7,123 firm-year observations of A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2012 to 2020. A comprehensive methodology involving regression analysis was applied to assess the relationship between CSR quality and the cost of debt capital. Various robustness tests, including different model specifications and alternative variable measurements, were conducted to ensure the reliability and validity of the findings. The results obtained indicate that higher CSR quality significantly correlates with a lower cost of debt capital, supporting the hypothesis that improved CSR disclosure reduces perceived credit risk. However, CEO financial expertise shows a significantly positive relationship with the cost of debt capital. Furthermore, the study reveals that CSR assurance and engagement with Big 4 accounting firms do not noticeably affect the price of debt capital, whereas mandatory CSR reporting does. The findings underscore the importance of CSR quality in financial decision-making, offering valuable insights. AcknowledgmentThis paper is co-funded by the European Union through the European Education and Culture Executive Agency (EACEA) within the project “EU Best Practice of Life Cycle Assessment, Social, Environmental Accounting and Sustainability Reporting” – 101047667-ERASMUS-JMO-2021-MODULE https://jm.snau.edu.ua/en/eu-best-practice-of-life-cycle-assessment-social-environmental-accounting-and-sustainability-reporting/ Oleh Pasko expresses sincere gratitude for the support from the Kirkland Research Program, generously provided by the Leaders of Change Foundation established by the Polish-American Freedom Foundation.

Mandatory CSR regime strips the competitive advantage: a comparative study of pre-post CSR mandate using the Bandwagon-bias effect theory

PurposeWith corporate social responsibility (CSR) becoming mandatory, several firms in India have been compelled into spending resources on CSR while their business strategy and processes were unprepared to take up CSR activities, effectively. In this light, the CSR relationship with other business functions would be altered. Using Thomson Reuters data from 2010 to 2018 (pre-mandate to post-mandate) this study aims to re-examine the relationship between CSR and financial performance.Design/methodology/approachThe current study is rooted in the bandwagon-bias effect theory and uses a long-term data (2010–2018) of Indian firms. It uses Refinitiv Thomson Reuters ESG rating to measure CSR and accounting measures for financial performance (FP) to make a pre-post analysis of the impact that mandatory CSR regime has had on firms performance. The study uses the weighted panel regression method.FindingsThe relationship between CSR and FP is different when CSR was voluntary than when it has been mandated by Law. CSR has a positive effect over the FP during the voluntary phase but this positive relationship weakens during the mandatory phase. The waning effect of CSR over FP substantiates the presence of bandwagon bias effect which can be explained by the crowding-in of several companies engaged in CSR activities because of the mandatory CSR law.Research limitations/implicationsvFew countries have made CSR mandatory therefore CSR literature is limited. But mandating CSR is a growing phenomenon so this study augments to the body of knowledge. Until now literature generally converged on a positive relationship between CSR performance and FP but the current study shows altering directions to this relationship in a changing CSR environment. The use of the bandwagon-bias theory contributes to the theoretical approaches. Theoretically, the findings add to the body CSR literature and offer impetus to the evolving domain of impact measurement and reporting.Practical implicationsResults of the study offer a clear indication to managers that they need to re-strategise their CSR activities during the mandatory CSR environment if they wish to draw instrumental benefits of a positive impact on the FP of their firms. CSR expenditure is now a leveller so managers may either exceed the mandatory 2% expenditure as some firms did during the voluntary CSR phase or else design their CSR implementation plans to bring about a more impactful positive change. Communicating the impact of CSR to influential and powerful stakeholders beyond the mandatory reporting to the government is yet another way through which managers can draw benefits of CSR activities. Additionally to draw positive results from CSR activities firms may consider adopting international reporting and benchmarking standards such as the GRI and ISO 26000. Finally, the results of the study can be used by policymakers to make a note that the CSR law is causing a weakening of the financial benefits and therefore.Social implicationsThe results of the study can be used by policymakers also need to make a note that the CSR law is causing a weakening of the financial benefits and therefore firms are adopting shortcuts, by donating the required amount of funds. But donation of funds defeats the real purpose of mandatory CSR which is social impact, therefore the regulators may want to make the necessary changes unplug the gaps in the CSR law to ensure better adherence to the law in spirit and a real impact on the ground activities.Originality/valueWhile CSR–FP relationship has been extensively explored but limited studies have explored this relationship in a mandatory CSR environment and no other work presents a comparative view of the CSR–FP relationship, namely, before and after the mandatory CSR policy. The current study is one of the limited few studying the impact of mandatory CSR policy on FP, and the only one that uses the bandwagon-bias effect to explain the phenomenon of weakening impact of CSR on FP of firms. Bandwagon-bias effect has been used in studying consumer behaviour, where group effect impacts behaviour of individuals and with mandatory CSR policy, firms following the other firms leading to crowding in. Using the bandwagon-bias effect has found limited attention from the CSR scholars, the current study uses this theoretical basis and therefore augments the CSR literature.

Investorsʼ view of mandatory corporate social responsibility as a public policy: The case of section 135 of the Indian Companies Act 2013

Investorsʼ view of mandatory corporate social responsibility as a public policy: The case of section 135 of the Indian Companies Act 2013

Moderating role of firm characteristics on the relationship between corporate social responsibility and financial performance: evidence from India

PurposeThe effect of corporate social responsibility (CSR) on corporate financial performance (CFP) is shown to depend on both firm-specific and external factors. This study investigates the moderating role of two firm-specific factors – the firm life-cycle stage and ownership structure – on the CSR–CFP relationship in a developing economy setting – India.Design/methodology/approachThe study covers 1,419 listed companies in India during 2015–21. The firm lifecycle is represented using firm age and future growth prospects. Ownership is represented through a dummy variable and promoters’ holding percentages. Return on assets (RoA) is used as a measure of CFP, while CSR intensity, i.e. the ratio of CSR expenditure to profit after tax (PAT), is used to represent CSR. Fixed effect panel regression and generalized method of moments (GMM) models are used for data analysis.FindingsCSR expenditure has a significant negative impact on CFP. Firm age and future growth prospects amplify this negative impact, indicating that the firm life-cycle has a significant negative moderating effect on the CSR–CFP relationship. Furthermore, the impact of CSR on CFP is worse for government companies than private ownership. Promoters’ holdings have a positive impact on the CSR–CFP relationship.Research limitations/implicationsThe results question the validity of mandatory CSR expenditure on companies operating in developing countries and call for a differentiated policy approach to CSR expectations based on firm characteristics. This study also enhances the existing literature on CSR–CFP.Originality/valueThe growing research on CSR–CFP has limited coverage of firm characteristics as contributing factors. Hence, this paper helps in enhancing the existing literature on CSR–CFP and makes it more relevant to firms with specific characteristics.

The Impact of Mandatory Corporate Social Responsibility Disclosure on Enterprise Risk-Taking: Facilitative or Constraining?

Using Chinese A-share listed companies from 2006 to 2013 as the research sample, this paper empirically examines the impact and mechanism of the mandatory CSR disclosure policy on Chinese firms’ risk-taking by combining the difference-in-differences (DID) approach. This study finds that the implementation of the policy increases firms’ operating costs and leads to an increase in their financing constraints, which ultimately creates a disincentive for firms to take risks. Second, we also find that, relative to firms that do not disclose CSR reports, the sales revenues, R&D investment and investment levels of firms subject to CSR disclosure are significantly reduced, which may be the result of firms’ tendency to operate conservatively. In addition, heterogeneity analyses suggest that the dampening effect of mandatory CSR disclosure policies on risk-taking is stronger for firms with higher financing costs and for non-state-owned firms. This study further explores the mechanism of the impact of mandatory CSR disclosure on firms’ risk-taking, which will help the government to formulate and improve the information disclosure policy regarding driving the transformation of corporate development in the future.

The Effect of Mandatory CSR Disclosures on Corporate Tax Avoidance: Evidence from a Quasi-Natural Experiment

ABSTRACT We examine whether and how mandatory corporate social responsibility (CSR) disclosures affect corporate tax avoidance. Using a CSR disclosure mandate in China that requires a subset of firms to disclose their CSR activities as an exogenous shock to CSR disclosures, our difference-in-differences analyses show that firms affected by the disclosure mandate engage in less tax avoidance relative to control firms. Additional analyses indicate that increased public scrutiny following the disclosure mandate is the likely channel through which mandatory CSR disclosures constrain tax avoidance. Cross-sectional analyses suggest that the effect of the disclosure mandate varies with institutional environments. Overall, our results indicate that the CSR disclosure mandate constrains corporate tax avoidance, which is consistent with mandatory CSR disclosures nudging firms toward more socially desirable behavior.

Corporate social responsibility and financial performance: Do group affiliation and mandatory corporate social responsibility norms matter?

This study examines the impact of corporate social responsibility (CSR) expenditure on the corporate performance of listed firms in India. It tries to explore the effect of business group affiliation and mandatory CSR norm on the CSR-performance relationship. The study period ranges from 2016 to 2021, and the data set comprises companies listed on the National Stock Exchange India. It employs a dynamic panel data model, and more specifically the system generalised method of moments technique to examine this issue. The results reveal a significant and positive association between CSR expenditure and corporate performance. It also shows that business group affiliation reduces CSR-performance sensitivity. Further, we find that mandatory CSR norms significantly influence the CSR-performance relationship.

Corporate social responsibility, CEO characteristics, and earnings management: Evidence from China

AbstractThis study examines the relationship between corporate social responsibility (CSR), earnings management (EM), and the characteristics of chief executive officers (CEOs) within the context of China's economic transformation. Drawing on stakeholder theory and upper echelon theory, this study investigates the influence of CSR on EM and the role of CEO characteristics. The empirical analysis is based on a sample of 1,980 Chinese firm‐year observations from the Shenzhen and Shanghai stock markets, between 2013 and 2017. The findings reveal a negative relationship between CSR performance and discretionary accruals (DA), suggesting that higher CSR is associated with lower EM. Moreover, this relationship is more pronounced among firms with highly educated CEOs (postgraduates) and mature CEOs (approaching retirement age). Notably, the negative CSR–EM relationship is strengthened in firms with mandatory CSR reports. This study expands prior research by exploring the impact of CEO characteristics on the CSR–EM relationship, incorporating CEO attributes alongside ownership structures and governance mechanisms. The findings offer insights for organizations in terms of selecting ethically committed CEOs, as well as guidance for shareholders in understanding CEO selection criteria. Furthermore, this study highlights the importance of mandatory CSR disclosure (CSRD) for policymakers evaluating CSR performance according to the disclosure type.

Corporate social responsibility disclosure and cash holdings

Purpose: the demand for firms to disclose their corporate social responsibility (CSR) activities has risen steeply over the last two decades, pushing many jurisdic-tions to implement mandatory non-financial reporting. We exploit the European non-financial reporting directive (NFRD) to study how companies change their cash management policies in response to additional mandatory CSR disclosure requirements. Methodology: we adopted a difference-in-differences (DID) approach, which is designed to estimate causality between the mandatory adoption of the NFRD and firms' cash holdings. We implemented a two-way fixed effect model in the context of mandatory disclosure and staggered adoption of regulation, in order to study how firms changed their cash holdings following the introduction of the NFRD. Findings: we find that firms increased cash holdings following enactment of the NFRD, which is in line with the theory that cash is held for precautionary reasons. The growth in cash holdings is not equally distributed, as it is less pronounced in firms that are in a high-investment phase. Our findings reveal that mandatory non-financial disclosure can have real effects. Originality/value: This research shows that, in the short-term, mandatory CSR disclosure can have real effects on cash holding. Long-term effects should be con-sidered further by future research. Practical implications (optional): Policymakers should consider that additional CSR requirements are costly to firms, and thus find mechanisms that induce firms to adopt these requirements despite their costs

Evaluating Mandatory Corporate Social Responsibility Disclosure Policies and Sustainability Development Goals Achievement in Indonesia

<div class="WordSection1"><p><em>The enactment of the 2007 Company Law confirms Indonesia’s requirement for mandatory disclosure of Corporate Social Responsibility (CSR). However, there has not been any research specifically examining CSR activities from the report disclosed. Only a few studies have examined the mandatory disclosure of CSR for companies whose core business does not directly include natural resources but whose activities significantly impact the environment. Therefore, this research aimed to evaluate and analyse the mandatory disclosure of CSR through company annual reports, taking a sample of listed textile businesses in Indonesia and the correlation with the achievement of Sustainability Development Goals (SDGs). The findings showed that the mandatory disclosure regulations in 2007 Company Law and Financial Service Authority Regulation Number 51/ POJK.03/2017 failed to improve optimal CSR implementation by textile companies in Indonesia. Various textile companies focused more on community development while paying little attention to environmental concerns. Additionally, detailed and explicit provisions were lacking in achieving the SDGs target. Reformulation of CSR disclosure policies was necessary to regulate reporting procedures, content, and criteria for environmental aspects of the programs in annual reports while correlating with </em><em>the targets of the 2030 SDGs policy.</em></p></div>

The determinants of corporate social responsibility (CSR) committee: executive compensation, CSR-based incentives and ESG performance

PurposeThis paper aims to investigate whether executive compensation, corporate social responsibility (CSR)-based incentives, environmental social and governance (ESG) performance and firm performance are the significant predictors of CSR committees, in addition to CEO, firm and corporate governance characteristics, from the tenet of stakeholder and managerial power theories.Design/methodology/approachSwitzerland is an exemplary country from the perspective of corporate governance and executive compensation. This empirical study includes a panel data set of listed Swiss companies, so fixed-effect logistic regression has been used.FindingsIt has been found that the companies that offer CSR-based incentives and higher compensation to their CEOs and have better ESG performance are more likely to have CSR committees.Practical implicationsThis empirical paper fills the gap in the literature, guides practitioners about the factors that influence the creation and efficiency of CSR committees, and inspires regulatory bodies to ponder on a mandatory CSR committee to form resilient and sustainable organizations worldwide.Social implicationsCOVID-19 has re-emphasized the prominence of sustainability and the stakeholder approach. Thus, this paper indicates that CSR committees require the adaption and implementation of a holistic sustainability policy that integrates both external and internal factors and thereby provides a whole process for sustainability issues.Originality/valueThe impact of CSR committees on corporate social performance (CSP) has already been investigated. However, the predictors of CSR committees have been less scrutinized in the literature.

Does mandatory expenditure on CSR affect firm value? Empirical evidence from Indian firms

PurposeThe purpose of this study is to examine the impact of mandatory corporate social responsibility (CSR) spending on firm value in the Indian context.Design/methodology/approachUsing firm-level data over the period 2012–2017, this study uses the difference-in-differences (DID) technique combined with matching to control for potential endogeneity of the decision to comply with the CSR Act since the Act in its current form is applicable as a comply-or-explain obligation.FindingsThe results of this study suggest that mandatory CSR spending has a positive and statistically significant impact on firm value. These results remain robust to alternative econometric techniques such as regression discontinuity design (RDD) and randomization inference test as well as to alternative empirical specifications. Furthermore, the study demonstrates that the positive effect of CSR spending on firm value is more pronounced for firms with higher information asymmetry problem and lower institutional holdings.Originality/valueThis study explicitly considers the “comply-or-explain” flexibility option, in terms of spending on CSR, provided to Indian firms for the initial two to three years and investigates whether spending on CSR helps firms enhance their firm value. The study also finds that the positive effect of CSR spending on firm value is more pronounced for firms with higher information asymmetry problems and lower institutional holdings.