Mandatory CSR expenditure and firm performance in lag periods: Evidence from India

Figures & data

Table 1. Summary of mandatory CSR expenditure-Financial performance studies

Source/Authors	Title	Geographical Focus	CSR expenditure measurement	Financial Performance measurement
Adegbite et al. (2019).	Financial and corporate social performance in the UK listed firms: the relevance of non-linearity and lag effects.	UK listed companies	social performance data from Thomson Reuters Asset4 in DataStream	two accounting-based measures (return on assets—ROA and return on equity—ROE).
Beloskar and Rao (2021)	Corporate Social Responsibility: Is Too Much Bad?—Evidence from India. Asia-Pacific Financial Markets,	Indian firms	Prowess database from the Centre for Monitoring Indian Economy (CMIE). Annual CSR expenditure as a percentage of average net profit of last three years	short-term financial performance (ROA, ROCE, and RONW) Tobin’s Q, EV/Total Assets and LIVA/Total Revenue which are indicators of long-term financial performance
Bhattacharyya, A., & Khan, M. (2021)	Financial inclusion, corporate social responsibility and firm performance—analysis of interactive relationship	Indian firms	CSR spending at the firm level (ACSREXP) we have used the amount spent for CSR by a company in that year and is extracted from Prowess database	firm performance is measured in the existing literature by ROA and Tobin’s Q.
A. Bhattacharyya and Khan (2021)	Is better banking performance associated with financial inclusion and mandated CSR expenditure in a developing country?	Indian companies	Natural logarithm of actual CSR expenditure	return on assets (ROA) and stock return (SR)
Asit Bhattacharyya and Rahman (2020)	Mandatory CSR expenditure and stock return.	Annual report information of Indian companies	Natural log of actual amount spent on CSR activities	Annual stock return
Garg and Gupta (2020)	Mandatory CSR expenditure and firm performance: Evidence from India	Indian corporate sector	mean percentage value of CSR expenditure	stock returns
Garg et al. (2021)	Is CSR expenditure relevant to the firms in India?	Indian corporate sector	the amount of CSR expenditure	stock returns and systematic risk (beta)
Jadiyappa et al. (2019)	Does social responsibility improve firm value? Evidence from mandatory corporate social responsibility regulations in India	Indian corporate sector	CSR ratio = ratio of CSR expenditure scaled by total sales	Tobin’s Q
Janamrung and Issarawornrawanich (2015)	The association between corporate social responsibility index and performance of firms in industrial products and resources industries: empirical evidence from Thailand.	Stock Exchange of Thailand (SET).	CSR index score reflects a firm’s responsibility toward the community, employees and environment.	Tobin’Q return on equity (ROE) return on assets (ROA),
Lee (2020)	CSR impact on the firm market value: Evidence from tour and travel companies listed on Chinese stock markets	Chinese stock markets a	5-point Likert scale is used to measure the CSR activity,	Market value, Sales, ROA, Tobin Q and Risk ratio
Manchiraju and Rajgopal (2017)	Does Corporate Social Responsibility (CSR) Create Shareholder Value? Evidence from the Indian Companies Act 2013.	Indian corporate sector	the amount of CSR expenditure,	stock price
Mukherjee et al. (2018)	Mandatory Corporate Social Responsibility: The Indian experience	the Indian experience	Dollar value of CSR spending	ROE
Nair and Bhattacharyya (2019)	Mandatory corporate social responsibility in India and its effect on corporate financial performance: Perspectives from institutional theory and resource‐based view	Prowess database contains Indian corporate sector information	CSR Intensity s our proxy for CSR spending,	Return on assets (ROA)
Omar and Zallom (2016)	Corporate social responsibility and market value: evidence from Jordan.	Jordanian firms listed on the Amman Stock Exchange (ASE)	Construction of the corporate social responsibility index	market value (measured by Tobin Q)
Sharma and Aggarwal (2021)	Impact of mandatory corporate social responsibility on corporate financial performance: the Indian experience	The Indian experience	actual total amount spent on CSR activities	ROA. ROE return on net assets (RONA).
Oware & Mallikarjunappa, 2020	CSR expenditure, mandatory CSR reporting and financial performance of listed firms in India : an institutional theory perspective	The Indian experience	CSR expenditure	ROA, ROE, SPR, Tobin’s q
Oware and Mallikarjunappa (2019)	Corporate social responsibility investment, third-party assurance and firm performance in India: The moderating effect of financial leverage	The Indian experience	CSR investment, third-party assurance	ROA, ROE

Table 2. Descriptive statistics

	Symbol	Obs.	Mean	Std. Dev.	Min.	Max
Return on Assets	ROA	640	1.892	0.985	0	3.701
Tobin’s q	TOB	640	3.804	3.844	0	25.151
Mandatory CSR expenditure in Lag0	MCSRE t-0	640	5.116	1.987	0	9.047
Mandatory CSR expenditure in Lag1	MCSRE t-1	640	4.458	2.522	0	9.047
Mandatory CSR expenditure in Lag2	MCSRE t-2	640	3.937	2.837	0	9.047
Mandatory CSR expenditure in Lag 3 and above	MCSRE t-3	640	3.298	2.992	0	9.047
Financial leverage	FL	640	0.348	0.477	0	1
Firm size	FS	640	11.992	1.511	8	16
Board independence	IBZ	640	5.639	1.654	1	13
Year effect	YDU	640	16.500	2.293	13	20
CSR committee no of meetings	CSRM	640	3.781	1.743	0	8
CSR committee no of members	CSRN	640	2.186	1.666	0	9
Growth sales percentages	GSAL	640	0.993	0.298	−6.441	1.248

Table 3. Correlation coefficients and variance inflation factor (VIF)

	1	2	3	4	5	6	7	8	9	10	VIF
ROA	1
TOB	0.609***	1									1.500
MCSRE t-0	0.380***	0.040	1								4.050
MCSRE t-1	0.267***	0.036	0.626***	1							3.040
MCSRE t-2	0.201***	0.033	0.435***	0.739***	1						3.980
MCSRE t-3	0.148***	0.034	0.303***	0.568***	0.781***	1					3.760
FL	−0.493***	−0.195***	−0.161***	−0.108***	−0.074*	−0.053	1				1.290
FS	−0.174***	−0.384***	0.680***	0.450***	0.320***	0.229***	0.171***	1			3.250
IBZ	0.082**	0.012	0.199***	0.116***	0.072*	0.036	−0.174***	0.189***	1		1.100
YDU	0.044	0.003	0.112***	−0.356***	−0.593***	−0.717***	−0.044	0.075*	0.016	1	3.280
CSRM	0.050	−0.006	0.441***	0.253***	0.138***	0.049	0.030	0.365***	0.076*	0.209***	1.410
CSRN	0.117***	−0.079**	0.564***	0.337***	0.195***	0.093**	0.023	0.476***	0.110**	0.199***	1.680
GSAL	−0.034	−0.100**	0.060	0.039	0.024	0.014	0.031	0.114***	0.016	−0.009	1.020
	11	12	13
CSRM	1
CSRN	0.464***	1
GSAL	0.017	0.057	1

Note: **p < 0.05, ***p < 0.01 and *p < 0.10 level (two-tailed), N = 640. Pairwise Correlation.

Table 4. Panel RE &FE regression: Mandatory CSR expenditure and firm performance

	ROA	Tobin’s q	ROA	Tobin’s q	ROA	Tobin’s q	ROA	Tobin’s q
	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6	Model 7	Model 8
CTL. variables
Financial leverage	−0.235*** [0.077]	0.183 [0.274]	−0.230*** [0.077]	0.186 [0.274]	−0.228*** [0.077]	0.188 [0.274]	−0.235*** [0.077]	0.197 [0.273]
Firm size	−0.310*** [0.085]	−1.033*** [0.176]	−0.317*** [0.066]	−1.027*** [0.169]	−0.316*** [0.066]	−1.026*** [0.168]	−0.306*** [0.066]	−1.018*** [0.167]
Board independence	0.038** [0.018]	0.115* [0.066]	0.038** [0.018]	0.116* [0.066]	0.040** [0.018]	0.118* [0.066]	0.038** [0.018]	0.124* [0.066]
Year effect	0.032*** [0.008]	0.036 [0.029]	0.042*** [0.009]	0.057* [0.034]	0.048*** [0.011]	0.073* [0.040]	0.040*** [0.018]	0.096** [0.046]
Growth sales %	−0.072 [0.057]	−0.275 [0.214]	−0.070 [0.057]	−0.272 [0.214]	−0.068 [0.057]	−0.267 [0.215]	−0.070 [0.057]	−0.261 [0.214]]
CSR committee members	−0.028 [0.018]	0.075 [0.068]	−0.032* [0.019]	0.069 [0.068]	−0.032* [0.018]	0.067 [0.069]	−0.030 [0.018]	0.066 [0.069]
CSR committee no of meetings	0.004 [0.020]	0.008 [0.074]	0.004 [0.019]	0.010 [0.072]	0.005 [0.019]	0.011 [0.072]	0.009 [0.019]	0.012 [0.072]
Independent variables
MCSRE t-0	0.027 [0.028]	0.062 [0.098]
MCSRE t-1			0.017* [0.010]	0.040 [0.036]
MCSRE t-2					0.018* [0.009]	0.042 [0.034]
MCSRE t-3							0.007 [0.009]	0.057 [0.035]
Regression	FE	RE	FE	RE	FE	RE	FE	RE
Within R ^2	0.086	0.031	0.089	0.034	0.090	0.035	0.085	0.037
Between R ^2	0.124	0.203	0.099	0.191	0.097	0.190	0.090	0.192
Overall R ^2	0.116	0.180	0.095	0.171	0.094	0.170	0.088	0.172
Obs.	640	640	640	640	640	640	640	640

Table 5. GMM regression: Mandatory CSR expenditure and firm performance

	ROA	Tobin’s q	ROA	Tobin’s q	ROA	Tobin’s q	ROA	Tobin’s q
	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6	Model 7	Model 8
CTL. variables
Financial leverage	−0.181* [0.107]	0.345 [0.277]	−0.186* [0.108]	0.332 [0.281]	−0.191* [0.108]	0.328 [0.281]	−0.202* [0.109]	0.324 [0.283]
Firm size	−0.054 [0.085]	−0.717*** [0.250]	−0.055 [0.098]	−0.776*** [0.256]	−0.062 [0.093]	−0.751*** [0.255]	−0.055 [0.028]	−0.766*** [0.253]
Board independence	0.021 [0.028]	0.160** [0.071]	0.023 [0.028]	0.169** [0.072]	0.023 [0.028]	0.171** [0.073]	0.024 [0.028]	0.169** [0.072]
Year effect	0.011 [0.009]	0.008 [0.024]	0.007 [0.011]	−0.011 [0.028]	0.010 [0.013]	−0.026 [0.035]	−0.010 [0.015]	−0.022 [0.088]
Growth sales %	0.013 0.052]	0.344*** [0.131]	0.017 [0.053]	0.353*** [0.133]	0.020 [0.052]	0.348*** [0.133]	0.016 [0.053]	0.351*** [0.134]
CSR committee meetings	0034 [0.032]	0.025 [0.073]	−0.059** [0.029]	0.010 [0.074]	−0.058** [0.029]	−0.001 [0.082]	0.037 [0.032]	−0.007 [0.082]
CSR committee members	−0.055* [0.028]	−0.002 [0.080]	0.034 [0.032]	−0.009 [0.082]	0.032 [0.032]	0.013 [0.074]	−0.055* [0.030]	0.013 [0.074]
ROA/Tobin q L1	0.273*** [0.067]	0.388*** [0.062]	0.291*** [0.065]	0.400*** [0.063]	0.289*** [0.066]	0.400*** [0.064]	0.307*** [0.067]	0.406*** [0.064]
Independent variables
MCSRE t-0	−0.051 [0.045]	−0.291** [0.113]
MCSRE t-1			−0.002 [0.009]	−0.001 [0.024]
MCSRE t-2					0.002 [0.008]	−0.017 [0.025]
MCSRE t-3							−0.015 [0.009]	−0.010 [0.026]
Regression	GMM	GMM	GMM	GMM	GMM	GMM	GMM	GMM
Wald Chi-square	31.01***	88.57***	29.60***	81.34***	28.88***	81.09***	32.24***	80.50***
No of instruments	30	30	30	30	30	30	30	30
Obs.	480	480	480	480	480	480	480	480

Table

	Large firms after amended Act 2013	Large firms with sustainability reporting after the amended Act 2013
Population of study	500	131
Sample size between 2013-2019		103
Sample size after removing firms with missing data		80

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