Does Corporate Social Responsibility (CSR) Create Shareholder Value? Evidence from the Indian Companies Act 2013

Manchiraju, H and Rajgopal, S (2017) Does Corporate Social Responsibility (CSR) Create Shareholder Value? Evidence from the Indian Companies Act 2013. Journal of Accounting Research.

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Abstract

In 2013, a new law required Indian firms, which satisfy certain profitability, net worth and size thresholds, to spend at least 2% of their net income on CSR. We exploit this regulatory change to isolate the shareholder value implications of CSR activities. Using an event study approach coupled with a regression discontinuity design, we find that the law, on average, caused a 4.1% drop in the stock price of firms forced to spend money on CSR. However, firms that spend more on advertising are not negatively affected by the mandatory CSR rule. These results suggest that firms voluntarily choose CSR to maximize shareholder value. Therefore, forcing a firm to spend on CSR is likely to be sub-optimal for the firm with a consequent negative impact on shareholder value.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Manchiraju, HUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: CSR, Shareholder value, India Companies Act 2013
Subjects: Business and Management
Corporate Governance
Depositing User: Veeramani R
Date Deposited: 23 Apr 2017 13:34
Last Modified: 23 Apr 2017 13:34
URI: http://eprints.exchange.isb.edu/id/eprint/531
Publisher URL: http://dx.doi.org/10.1111/1475-679X.12174
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0021-8456/
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