CSR as a Driver of Financial Performance: Empirical Insights from Indian Corporates
Rupali S. Ambadkar *
Department of Accounting and Financial Management, Faculty of Commerce, The Maharaja Sayajirao University of Baroda, Vadodara, Gujarat, India.
Monika Rambriksh Yadav
Department of Accounting and Financial Management, Faculty of Commerce, The Maharaja Sayajirao University of Baroda, Vadodara, Gujarat, India.
Tejal Mitesh Solanki
Department of Accounting and Financial Management, Faculty of Commerce, The Maharaja Sayajirao University of Baroda, Vadodara, Gujarat, India.
*Author to whom correspondence should be addressed.
Abstract
In recent years, Corporate Social Responsibility (CSR) in India has witnessed a significant transformation, particularly since its mandatory implementation on April 1, 2014, which requires companies meeting specified financial criteria to spend at least 2% of their average net profits of the preceding three financial years on CSR activities. This study examines the impact of CSR expenditure on the Financial Performance of Indian Corporates. The study sample consists of 18 non-financial companies that are constituents of the S&P BSE SENSEX Index. Balanced panel data with 90 observations over 6 years from 2017-2018 to 2022-2023 have been employed for data analysis. The required secondary data has been collected from the annual reports of the companies. CSR Expenditure has been selected as a measure to indicate the independent variable, Financial Performance, as the dependent variable is represented by Return on Equity (ROE). Leverage is measured through the debt-equity ratio (DER), and Size is represented by the natural logarithm of total assets and is employed as a control variable. The research hypotheses have been tested through Panel Data Regression by using the Random and Fixed Effect Model. The results of Panel regression analysis reveal that ROE is significantly positively impacted by CSR Expenditure, indicating that the benefits of CSR spending may not be immediately evident but can lead to improved financial outcomes over the long term. CSR expenditure does not have a significant impact on ROA. Leverage significantly positively impacts financial performance, suggesting that an optimal debt-equity mix can enhance a company's returns. Size negatively impacts ROE and ROA, indicating the issues relating to potential operational efficiency. The study findings highlight the importance of sustained CSR efforts for long-term financial success and conclude that companies that spend more towards Corporate Social Responsibility observe enhancements in their financial performance.
Keywords: Corporate social responsibility, CSR expenditure, financial performance, S&P BSE SENSEX