Relationship between Stakeholder Management and Firm Profitability? Evidence from India
Posted: 26 May 2022
Date Written: January 17, 2021
Abstract
Purpose - This study empirically examines the relationship between corporate social responsibility disclosure (CSRD) and financial performance (FP) of firms in India.
Design/methodology/approach - Data for CSRD is collected by conducting content analysis of CSR disclosure in annual reports of the sampled firms. A multidimensional measure of CSRD is constructed based on stakeholder theory, consisting of six stakeholder groups – employees, customers, investors, community, environment and others. The aggregate CSRD measure is created by combining disclosure towards the six CSR dimensions. Multiple regression analysis is employed to examine CSRD-FP linkage controlling for the confounding effects of size, risk, age, industry, ownership and time period.
Findings - The results of this study indicate that aggregate CSRD measure, and four of the six CSRD dimensions, namely ‘employees’, ‘customers’, ‘environment’, and ‘others’ have a positive association with FP of firms. However, ‘investors’ and ‘community’ dimensions of CSRD are observed to have statistically insignificant association with FP of Indian firms.
Practical implications - The results reveal that adopting transparent and extensive CSR disclosure is relevant for profitability of firms, and Government interventions are required to promote CSR programs of firms towards CSR dimensions that provide no apparent financial gains.
Social implications - This study recommends companies to adopt inclusive CSR practices, and report them to their stakeholders.
Originality/value - This study contributes to the scarce literature on CSRD-FP linkage in context of emerging economies by using a more inclusive data set, creating a reliable measure
of CSR disclosure applicable to a large universe of firms, and including relevant control variables that affect CSRD-FP relationship.
Keywords: stakeholders, profitability, CSR, CSR disclosure, Financial Performance
JEL Classification: M1, M14, M40, M41, M42, M48
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