Corporate Social Responsibility Expenditure and Financial Performance: The Case of Optional Spending and Mandatory Reporting in India

Abstract

This study examined the correlation between Indian firms’ Corporate Social Responsibility (CSR) expenditure and their financial performance (FFP) using disclosure data from 479 firms between 2014 and 2020. This period was notable for mandatory CSR reporting but optional spending. A panel regression analysis was employed to assess firm behavior from the perspectives of institutional, signaling, and value creation theories. This study found that firms’ CSR expenditure was notably lower than mandated spending in all sectors, except in the energy, material, and consumer-staples sectors. Overall, CSR spending was associated with improved margins, supporting value creation theory. However, the impact varied across industries: the energy, material, industrial, consumer-discretionary, and healthcare sectors exhibited a negative association, whereas the consumer-staples sector showed a significant positive association. Thus, promoting CSR spending in sectors that benefit the most may be more effective than adopting a uniform approach across all sectors. Regulatory bodies should consider developing industry-specific intervention plans to integrate CSR more effectively into mainstream business practices.