Family Firms and Compliance with Mandatory CSR: Evidence from a Natural Experiment

Our study leverages a natural experiment setting based on the mandatory corporate social responsibility (CSR) regulation in India to address whether and how CSR spending is influenced by ownership by a family and the heterogeneity in family ownership. Using a longitudinal panel dataset of 1,102 listed firms in India, our study finds that, driven by the motivation to pursue legitimacy-seeking activities and build family legacy, family firms comply better with the CSR regulation. The compliance is further improved for firms belonging to family business groups. We further test our theoretical mechanism by examining the modes of CSR implementation and find that family business group firms and legacy firms tend to use substantive (direct or in-house) modes of implementation. Given the nature of our research setting where the CSR regulation as well as what qualifies for CSR is clearly defined and externally imposed, our study is able to overcome some of the limitations of prior research viz., endogeneity concerns, and inconsistencies in the operationalization of CSR.