The Politics of Mandatory Corporate Philanthropy
80 Pages Posted: 7 Mar 2023 Last revised: 26 Sep 2023
Date Written: March 3, 2023
India requires certain companies to disclose corporate social responsibility (CSR) expenditures and meet CSR targets. However, these firms cannot classify political donations as CSR. I argue that firms belonging to business groups, which are politically dependent and have opaque corporate governance, substitute between CSR and political donations. Business group members are less likely to meet CSR targets and reduce CSR spending around elections in their headquarter state. Consistent with the substitutability thesis, these firms increase measures of official and illicit political donations around elections. The staggered and pre-determined timing of state elections supports a causal interpretation of this substitution effect.
Keywords: Corporate social responsibility, political business cycles, India, agency costs
JEL Classification: G32, G38, K22, M14
Suggested Citation: Suggested Citation