Does institutional ownership and internationalization affect corporate social responsibility in emerging economy firms? An empirical evidence from India

Abstract

Purpose The preference of firm corporate social responsibility (CSR) spending is shaped by different groups of owners and the institutional environment in which the firm operates. This paper aims to study the heterogeneity among the controlling groups and firms’ internationalization in influencing the CSR decision in emerging economy firms. Design Methodology Approach This paper draws understanding from institutional theory to inspect the propensities of various ownership groups such as lending institutions (LI), domestic mutual funds (MF) and foreign institutional investors (FIIs). The empirical analysis was conducted from a sample of 1,594 unique Bombay stock exchange (BSE)-listed non-financial Indian firms during the 2014–2019 period using Tobit panel regression analysis. Findings The findings reveal that firms’ CSR activities are impacted differently by ownership share of different types of institutional investors after controlling for firm-level resources and capabilities. Lending institutions, FIIs and MF are supportive of CSR investments by firms along with international investments by the firm. Further, the results show that the CSR spend is positively influenced by the business group affiliation of the firm compared to the unaffiliated group of firms. Practical Implications The analysis has implications for both institutional investors and multinational firms. In the merging market context, managers and owners who target long term strategies such as CSR will benefit from increasing shareholdings of creditors (lending institutions). They can also take steps to improve their transparency and corporate governance structure so as to attract foreign institutional investments, thus, in turn, helping the internationalization process of the firm. Originality Value This paper considers the role of the diverseness of the ownership institutional investors along with the moderating effect of business group affiliation of the firm and international investments in impacting the CSR spend. This disparity has not been previously studied with the latest data in an emerging economy context.

CSR Spending in India: Exploring the Linkages With Business Group Affiliation and Product Portfolio Diversification

“…Findings support the stewardship theory and socio-emotional wealth creation from a group-affiliated firms' perspective, which indicates that group-affiliated firms prioritize long-term wealth creation through social reputation (Fernando et al,2014). The findings also reveal that institutional investment has a significant positive impact on CSR spending, indicating that institutional investors are interested in CSR engagement by their portfolio firms supporting the prior literature (David, Bloom, and Hillman, 2007;Goranova and Ryan, 2014;Panicker, 2017;Nuvaid, Sardar and Chakravarty, 2018;Kim, Park and Roy Song, 2019;Chen, Dong, and Lin, 2020;Tokas and Yadav, 2020;Pradhan and Nibedita, 2021;Manogna and Mishra, 2021). It may be attributed to the fact that the CSR investment by the portfolio firms makes their stocks more resilient to market shocks (Silva, 2021;Song, 2015).…”

“…The findings of the study reveal a positive association between group affiliation status and CSR spending. It indicates that group-affiliated firms engage more in CSR activities than non-group-affiliated firms supporting the prior literature (Choi et al, 2018;Huang et al, 2021;Manogna & Mishra, 2021;Panicker, 2017). The extension of the baseline model to test the impact of group size reveals a significant positive impact on CSR spending.…”

“…With reference to agency theory and socio-emotional wealth perspective, the present study hypothesizes a positive association between group affiliation status and CSR spending. The prior literature supports the positive impact of group affiliation status on CSR spending (Choi et al, 2018;Huang et al, 2021;Manogna & Mishra, 2021;Panicker, 2017).…”

“…The literature review identified the following studies examining the relationship between group-affiliated firms and their CSR spending (Choi et al,2018;Guo et al, 2018;Huang et al, 2021;Lee, 2018;Manogna and Mishra, 2021;Panicker,2017).…”

Ownership structure and corporate social responsibility in India: empirical investigation of an emerging market

“…CSR holds more importance for emerging economies due to its role in development initiatives and financial upliftment of the local communities (Rahman Belal and Momin, 2009;Bai and Chang, 2015) Therefore, over the past few years, various dimensions of CSR in the context of emerging countries have been attracting keen attention from researchers (Yin and Zhang, 2012;Arya and Zhang, 2009;Marano and Kostova, 2016;Jamali and Karam, 2018;Manogna and Mishra, 2020b). Emerging economies such as India have family presence in terms of large family firms that are listed in the stock markets dominating the industrial landscape.…”