A win-win situation: uncovering the relationship between CSR reporting and financial performance in Indian companies

Abstract

Purpose This study aims to evaluate the relationship of corporate social responsibility (CSR) reporting with the financial performance of firms using various market and accounting-based parameters in a developing economy, India. Design/methodology/approach The study uses content analysis to develop a CSR reporting index for the Indian firms listed on the Bombay Stock Exchange. The two-step system generalized methods of moments has been used for the estimation of the panel data. Findings The results from the study suggest that the CSR reporting-based activities of the firms may impact the financial performance of the firms, but at the same time, the need of the hour is to create awareness among the investors and market players so that they realize the relevance of CSR reporting, which can further improve other dimensions of financial performance as well. Research limitations/implications The study relies on Tobin’s Q and return on assets while measuring financial performance, though there are various other parameters that can be used to gauge the performance. The outcomes of this study have practical implications for the practitioners as well as policymakers, incentivizing them to integrate CSR aspects into their decision-making frameworks. Originality/value To the best of the authors’ knowledge, this is the first Indian study to develop a unique index for CSR reporting and linking it with financial performance. This study shall assist the researchers in broadening the scope of CSR studies in India and can be used to draw a systematic comparison with developed nations.