Does firms' commitment towards CSR influence idiosyncratic volatility? Evidence from India

Abstract

Inconclusive evidence on how CSR affects idiosyncratic volatility (IVOL) is potentially because of different approaches used to measure firms' CSR performance. We use the actual amount spent on CSR activities to measure firms' CSR performance. For a sample of 20,410 firm-year observations and 2000–2021 period, we show that as firms' CSR spending increases, IVOL decreases. This relationship becomes stronger as social-and-community and employee-welfare spending increases but is insensitive to spending on environmental-protection. Cash flow volatility and financial-constraints decreases, and firm valuation improves with employee-welfare spending. It is important to integrate CSR with risk-management-strategies at the firm-level and policy-formulation at the economy-level.