Mandatory CSR Spending and Audit Fees: Evidence from India's mandatory CSR spending regulation

• In Event: 2.03. Reporting Requirements, ESG Investments, and Financial Outcomes

Abstract

We examine the implications of mandatory CSR in the context of Sec135 of the Indian
Companies Act 2013 on Audit fees. Sec135 required that firms that met certain thresholds for
sales/profits/net worth were required to spend 2% of their profits on CSR activity. We find that
firms impacted by the law incurred higher audit fees than firms that were not impacted by the
law. Our results are consistent across multiple identification strategies including inverse
propensity score reweighting (IPTW), entropy balancing, and regression discontinuity designs.
Finally, we also find that the increase in audit fees cannot be attributed to increased compliance
costs. Our results suggest that the regulation has unintended consequences in terms of increasing
costs borne by the firm, which can be value destructive.

Authors

• Partha Sarathi Mohapatra, California State University-Sacramento

• Anup Nandialath, University of Wisconsin-La Crosse

• Jagdish Dandu, Zayed University

• Sudipta Bose, University of Newcastle