Does Mandated Corporate Social Responsibility Crowd Out Voluntary Corporate Social Responsibility? Evidence from India

We investigate the implementation of a government of India mandate that requires firms to spend at least 2% of their profits on corporate social responsibility (CSR). We find that mandated firms that voluntarily engaged in CSR before the mandate reduce their CSR spending significantly after the mandate. The erstwhile voluntary CSR spenders increase advertising expenditure plausibly to offset the lost signaling value of voluntary CSR. The 2% mandate negatively impacts valuations and operating performance. Our results show that regulatory intervention in CSR diminishes its signaling value and leads to a reduction in voluntary CSR spending