The consequences of mandatory corporate social responsibility expenditure: An empirical evidence from India

Abstract

The transition in governmental approach towards corporate social responsibility (CSR) from voluntary to mandatory has received much attention in the recent literature, mainly because the delegation of its role in social development has rarely been provided. In this context, the questions we raise are: Does mandatory CSR leads to higher expenditure? How does it affect business leaders' intrinsic motivation to spend on CSR? The case of India's section‐135 of Companies Act, 2013 shows that mandatory CSR has made companies more responsible by raising the level of CSR expenditure and positively affecting business leaders' intrinsic motivation to incur CSR expenditure. However, this gain has come at a cost as CSR expenditure has become more sensitive to profit, which is undesirable from society's perspective. The study uses instrumental theory and motivation‐crowding theory to explain the CSR behavior of NIFTY 100 companies from financial year 2009–2010 to 2018–2019. Overall, results of the present study suggest that government should prefer the approach of mandatory CSR with some precautions to instrumentalize the rising success of corporate sector for addressing the environmental and social issues in country.

Intellectual Capital and Firm Performance in Vietnam: The Moderating Role of Corporate Social Responsibility

“…[32] state that resource-based and stakeholder theories can be used in an integrated framework to explain managerial incentives that affect CSR. Consistency is found between the resource-based view and stakeholder theory [33]. Both theories can be considered interrelated to explain the determinants of the relationship between intellectual capital and CSR.…”

Can Mandatory Disclosure of CSR Information Drive the Transformation of Firms towards High-Quality Development?

“…For example, Chen et al found that the CSR performance pressure on firms caused by mandatory disclosure of CSR information may force firms to excessively increase their expenditures on CSR-related activities, leading to a sharp increase in their short-term operating costs, which in turn is detrimental to their economic performance [2]. Similarly, Gupta and Chakradhar found that the stock price of regulated firms decreases with the implementation of mandatory CSR policies [6,28]. In turn, the decrease in stock price level and economic performance may negatively affect the firm's cost of equity, financing efficiency, and therefore discourage activities such as R&D and investment, which may ultimately act as a disincentive to firm productivity.…”

“…Compared to previous studies, this paper may make marginal contributions in the following three areas: First, although the disclosure of CSR reports is a growing trend worldwide, previous studies on the economic consequences of corporate CSR disclosure have mainly examined data from developed countries [5]. And studies have shown that the implementation of the same CSR policy in different countries may have diametrically opposite economic consequences due to reasons such as economic systems and cultural backgrounds [6,7]. As the largest developing country, China's unique socialist system has led its economy to take a very different path from that of Western countries.…”

The Effects of Local Shareholders on Firm Performance: Evidence From Corporate Social Responsibility

“…Less able CEOs over or underinvest in an opportunistic way for personal benefit at shareholders' expense (Garcia-Sanchez & Martinez-Ferrero, 2019). CEOs may face pressure from institutional environments such as government regulations for CSR investments (Gupta & Chakradhar, 2022). Firms may suffer from possible misappropriation and misallocation of scarce resources (Garriga & Melé, 2004;Margolis & Walsh, 2003).…”