The benefits of mandatory Corporate Social Responsibility (CSR) for both performing and outperforming companies are more reflected in intangible firm characteristics like reputation and brand image than in measurable performance metrics.
Author
Ubais Parayil Iqbal, Department of Business Studies, University of Technology and Applied Sciences – Nizwa, Nizwa, Oman
Sobhith Mathew Jose, School of Management, Bennett University, Greater Noida, India; Department of Accounting and Finance, O. P. Jindal Global University, Sonipat, India
Tilda Mary Daniel, Department of Commerce, CMS College, Kottayam, India
Summary
Purpose
This paper aims to examine the diverse levels of corporate social responsibility (CSR) expenditure among Indian companies and its influence on their performance. The study aims to determine whether exceeding the mandatory CSR spending limit provides an edge to companies that outperform in enhancing corporate firm value.
Design/methodology/approach
A dynamic model using system generalized method of moments (GMM) was used to analyze a balanced panel data set of 191 firms over seven years, spanning from 2016 to 2022. Return on assets was used as a proxy to gauge financial performance. At the same time, the study also examined the robustness of the results by considering return on equity and Tobin’s Q as additional measures.
Findings
The study results indicate that, in a mandatory CSR setting, all companies are generally perceived as performing and reporting on CSR equally. Hence, it will not make any payoff, although few companies outperform. Therefore, companies should differentiate themselves regarding CSR spending and reporting to claim a competitive advantage in the market. The study also suggests that the payoff of mandatory CSR expenditure for both performing and outperforming companies is reflected more in non-quantifiable firm characteristics than in measurable performance metrics.
Research limitations/implications
The period of study covers 7 years, i.e. 2015–2016 to 2022–2023. This may limit capturing long-term CSR practices and firm performance trends. Additionally, data from only 191 Indian companies restrict generalizability; future research should include diverse geographic regions with mandated CSR spending to provide a more comprehensive view. In subsequent studies, contextual factors like regulatory changes and macroeconomic conditions could be considered moderating variables.
Practical implications
The study provides valuable insights to top management, indicating that spending beyond the threshold limit of mandatory CSR spending does not enhance corporate firm value. Instead, this additional investment may yield benefits in the form of goodwill and reputation over the long term.
Social implications
This study assists corporations in optimizing their CSR strategies to enhance their social and financial performance impact. Moreover, the study suggests ways to improve the CSR payoff and the need for increasing stakeholder satisfaction.
Originality/value
The study provides original insights into the relationship between mandatory CSR spending and firm performance in the Indian context, revealing that CSR spending does not significantly impact financial metrics, and it highlights the importance of considering a non-quantitative matrix to enhance the firm value in a mandatory CSR setting.
Published in: Social Responsibility Journal
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