Corporate Social Responsibility: Is Too Much Bad?—Evidence from India

Over the years, firms have been using Corporate Social Responsibility (CSR) as a strategic tool to improve their competitiveness and ultimately benefit their stakeholders. The evidence on the impact of CSR on firm performance, as documented in the literature, is mixed. This paper aims to examine the relationship between socially responsible behaviour and firm value in the Indian context. We use the natural research setting created by the Indian Companies Act, 2013, which mandates a category of firms to spend at least 2% of their net profits on CSR activities. Over the years since the introduction of the mandatory CSR regime in India, few firms have continued to spend more than the statutory minimum on CSR activities. Using Regression Discontinuity Design (RDD), we have examined the impact of CSR spending in excess of the statutory minimum on the short-term and long-term performance of firms. Using a sample of listed Indian firms which incurred CSR spending in at least one out of the preceding five financial years ending on March 31, 2019, we find that firm's choice of spending more than the required minimum on CSR negatively affects its short-term financial performance. The evidence on the impact of excess CSR spending on long-term financial performance of such firms is mixed. Overall, our study provides evidence that CSR spending in excess of the statutory minimum imposes social burden on the business activities of the firms at the expense of returns to the shareholders. The findings of our study may help firms design their CSR policies and expenditure. The evidence may also help policymakers in determining the level of mandatory CSR spending.