Impact of Financial Performance on CSR Spending in India

Abstract

Business uses society's resources, so businesses should contribute to the well-being of society. In return of extracting resources from society, the business has to return what it owes in the forms like promotion of education, health care programs, protection of national heritage, etc. With amended legislation to mandate CSR spending by Indian firms, The Companies Act, 2013 acted as a milestone in shifting the stance of companies from passive philanthropy to active involvement in CSR activities. According to stakeholder and agency theories, fulfilling CSR has its costs and benefits, as a double-edged sword. The objective of this paper is to examine the impact of the financial performance of the companies on the CSR expenditure of selected Indian firms. The study is based on an empirical investigation of the relationship using a panel dataset of 284 Indian firms listed on the Nifty 500 over the period 2015 to 2022. The panel regression analysis revealed heterogeneous behavior of the financial performance of the firms. The findings of the study confirm the positive significant impact of accounting performance indicators on the level of CSR expenditure in companies. The results indicate that CFP has a significant impact on the company's CSR spending, in other words, companies with higher financial performance will have greater CSR exposure. It recommends that companies should not pamper investors with higher dividends from higher earnings by neglecting CSR investments, but rather meet society’s expectations through the allocation of funds towards CSR activities. In reality, the CSP-CSR relationship acts in a circular form, it simply exists in both directions.