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

53 Pages Posted: 6 May 2015 Last revised: 20 Feb 2018

See all articles by Hariom Manchiraju

Hariom Manchiraju

Indian School of Business (ISB), Hyderabad

Shivaram Rajgopal

Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 9, 2017

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.

Keywords: CSR, shareholder value, endogeneity, exogenous shock

Suggested Citation

Manchiraju, Hariom and Rajgopal, Shivaram, Does Corporate Social Responsibility (CSR) Create Shareholder Value? Evidence from the Indian Companies Act 2013 (February 9, 2017). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2602960 or http://dx.doi.org/10.2139/ssrn.2602960

Hariom Manchiraju

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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