The Impact of Mandated Corporate Social Responsibility on Financial Performance: Evidence from the India’s Companies Act, 2013

• In Event: Forum on Reporting Standards

Abstract

This study examines the association between mandated Corporate Social Responsibility (CSR) expenditures of activities under the India’s Companies Act of 2013 and firm’s future financial performance. Using a sample of Indian firms from 2014 through 2016, this study finds that there is a positive association between CSR expenditures and future cash flows, and a negative association between CSR expenditures and future earnings. However, this study finds that future earnings is associated with the levels of CSR expenditures invested in Poverty, Society, and Politics, but not related to the levels invested in Government project. This study also finds that the level of CSR expenditures are associated with firms with a high proportion of independent directors on the compliance committee, a higher number of women directors on the board, and high percentage of control ownership (e.g., promoters). Finally, this study finds that the optimal level of CSR expenditures leads to improvements in firms’ future cash flows. This study does not find evidence to support that the deviation is associated with firms’ future performance. Our findings provide evidence that high level of CSR expenditures lead to improvement in firms’ future financial performance, therefore, the level of CSR expenditures is an investment other than a signal mechanism

Authors

• Shu-hsing Wu, Chang Jung Christian University

• Wen-hsin Hsu, National Taiwan University

• Wen-hsin Hsu, National Taiwan University