Mandatory CSR expenditure and firm performance: Evidence from India
South Asian Journal of Business Studies
ISSN: 2398-628X
Article publication date: 17 March 2020
Issue publication date: 22 May 2020
Abstract
Purpose
This study, based on the instrumental approach of the stakeholder theory, examines the firm performance of public and private sector firms in the mandatory corporate social responsibility (CSR) expenditure regime in India. CSR was legislated in India in the year 2014.
Design/methodology/approach
The study hypothesizes that firms which fulfill the mandatory CSR expenditure requirement will have a higher firm performance and uses one-way ANOVA and post-hoc test for analysis. Firm performance is examined with respect to firm value and market performance.
Findings
The instrumental approach of the stakeholder theory is not supported in the mandatory CSR expenditure regime in India. The public sector firms that comply with the mandatory CSR expenditure requirement have a lower firm performance. Further, the private sector firms that meet the mandatory CSR expenditure criterion do not have a significantly different firm performance than the private sector firms that do not fulfill this criterion.
Practical implications
The study indicates as to why some firms fail to meet the CSR expenditure compliance. It also gives suggestions on how regulators and government agencies can solicit the participation of the Indian firms to undertake CSR initiatives. The study further suggests how firms may reap maximum benefit from the CSR expenditure.
Originality/value
Since CSR expenditure has been made mandatory only in the year 2014 in India, hardly any study has examined firm performance in the mandatory CSR expenditure regime in India.
Keywords
Citation
Garg, A. and Gupta, P.K. (2020), "Mandatory CSR expenditure and firm performance: Evidence from India", South Asian Journal of Business Studies, Vol. 9 No. 2, pp. 235-249. https://doi.org/10.1108/SAJBS-06-2019-0114
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited