Impact of Corporate Governance on Corporate Social Responsibility in India—Empirical Analysis

Abstract

In continuation of the previous chapter on corporate social responsibility in India, this chapter further extends the discussion by investigating the determinants of CSR activities and expenditure in large Indian corporate. Unlike developed countries, India has a specific corporate governance problem of disciplining the dominant shareholder who is in control of the management and most of the times serve on the board as well. Using a sample of largest 500 firms between 2010-2012 that are listed on Bombay Stock Exchange we find that firms which are older, larger and pay dividend are more likely to undertake the CSR activities. We also find significant positive relationship between CSR and proportion of controlling shareholders which implies that founding families or government are driven by strategic decision of investing into CSR related activities. This is also in line with the positive relationship between insiders’ control over board and CSR. In contrast, fraction of independent directors does not affect the CSR even though our univariate analysis suggests that firms with higher proportion of independent directors spend more on CSR activities. To our surprise, profitability does not have any significant relationship with CSR activities. This questions the recent mandate of diverting 2% of the profit towards CSR activities in the Companies Act 2013. It is worth noting that some of the puzzling results presented in this section could be due to the unobservable nature of our attributes such as corporate governance along with the inaccurate measurement of the proxies to capture these attributes. We attempt to address some of these challenges in the following chapter by developing a structural equation model.