Ownership and corporate social responsibility in Indian firms

Abstract

Purpose The purpose of this paper is to look at the association between different ownership categories and corporate social responsibility (CSR) spending of selected Indian firms. Design/methodology/approach Random-effects Tobit panel regression is performed on a panel of 4,388 firm years of 1,722 unique firms over a three-year period (2014-2016). Findings Different categories of institutional investors have different preferences for CSR spending of a firm. Promoters of business-group affiliated and unaffiliated firms also behave differently towards CSR activities of their firms. Research limitations/implications Heterogeneous behavior of institutional investors is revealed through the study. Foreign institutions and domestic banks are supportive of CSR investments of a firm. Promoters of family firms and group affiliates also diligently plan CSR activities. Practical implications Managers cannot ignore the heterogeneities of institutional investors in their investment decisions. Individual investors can align their philanthropic preferences with those of different types of institutional investors or firms. Social implications Family-owned firms play a significant role in CSR activities of emerging economies, while individual promoters are not as attracted by the reputational prospects of CSR. Originality/value This paper considers the role of heterogeneities of institutional investors in influencing CSR spending of emerging-economy firms. This heterogeneity has not been previously studied in this context.

Institutional Ownership and Corporate Social Performance in Emerging Economies Multinationals: Evidence from India

“…Mutual fund investors as professional investors have lower stock ownership in Indian firms (Panicker, 2017). This lower ownership by mutual funds investors causes lower incentive to monitor the firm CSR actions.…”

“…Literature shows that mutual funds investors are short-term oriented and prefer quick return from their investments with a higher rate of turnover form their portfolio (Aguilera et al, 2006; Falkenstein, 1996; Tihanyi et al, 2003). These studies also argue that mutual fund investors have high competition for their clients and prefer higher financial which causes short-term investment (Panicker, 2017). CSR activities pay in the long run and short-term investors are not able to take the benefit of such investments (Gaspar et al, 2009).…”

“…Foreign institutional owners have larger shareholding among institutional investors in Indian firms (Panicker, 2017). After the structural economic changes in 1990, there is a significant change in the investment by FIIs.…”

“…Previous studies established the relationship between firm governance structure and CSR (Aguilera et al, 2006; Neubaum & Zahra, 2006). Existing studies in the Indian context have found heterogeneous behaviour of institutional investors for firm CSR expenditures (Panicker, 2017). Emerging economies firm have a dominance of business group and family ownership with other institutional owners (Ramaswamy et al, 2002), which differentiates it from developed economy firms.…”

“…Emerging economies firm have a dominance of business group and family ownership with other institutional owners (Ramaswamy et al, 2002), which differentiates it from developed economy firms. Different motives and time preference of these owners complicate their choice about CSR (Panicker, 2017).…”