Does A Government Mandate Crowd Out Voluntary Corporate Social Responsibility? Evidence from India

72 Pages Posted: 7 Sep 2021 Last revised: 26 Apr 2022

See all articles by Shivaram Rajgopal

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Prasanna L. Tantri

Indian School of Business

Date Written: August 22, 2021

Abstract

This study investigates the implementation of a Government of India mandate that requires firms to spend at least 2% of their profits on corporate social responsibility (CSR). The results show that qualifying firms that voluntarily engaged in CSR before the mandate reduce their CSR spending afterward. Despite increasing advertisement expenditure likely to offset the lost signaling value of voluntary CSR, stock prices and operating performance of former voluntary CSR spenders who qualify under the law decline. Our results suggest that regulatory intervention in CSR can both diminish its signaling value and lead to a reduction in voluntary CSR spending.

Keywords: Corporate Social Responsibility; Sigaling

JEL Classification: M40, M41

Suggested Citation

Rajgopal, Shivaram and Tantri, Prasanna L., Does A Government Mandate Crowd Out Voluntary Corporate Social Responsibility? Evidence from India (August 22, 2021). Available at SSRN: https://ssrn.com/abstract=3909219 or http://dx.doi.org/10.2139/ssrn.3909219

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Prasanna L. Tantri (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
723
Abstract Views
1,844
Rank
67,549
PlumX Metrics