Linking Finance and Responsibility: What Drives CSR Spending in India

Abstract

India has been the first country to legislate for both voluntary and mandatory Corporate Social Responsibility (CSR) spending. Despite that, there are many businesses that deviate from their minimum expenditure requirement on CSR. Thus, getting a better understanding of primary factors that impact CSR expenditure of Indian companies becomes imperative and is the primary aim of this study. Using fixed effect regression model from 2014 to 2023 on Nifty 100 companies, this study attempts to examine the impact of profitability, liquidity, financial leverage, firm size, and firm age on CSR expenditure of Indian businesses. This study covers a decade marked by several significant regulatory reforms and economic shifts which included introduction of new CSR regulations that mandated CSR spending. The extended time frame of the study captures evolving market dynamics and rising expectations around corporate responsibility, offering insights that go beyond the scope of prior studies with shorter durations. The findings indicate that firm size and age have a positive and significant impact on CSR expenditure, whereas financial leverage has a negative yet significant influence. Profitability and liquidity were found to have no significant effect on CSR expenditure. As responsible business behavior has evolved from a mere legal obligation to a prominent strategic tool, the results of this study can assist businesses, investors, and policymakers in developing effective business strategies, making informed investment decisions, and formulating policies that maximize societal benefit.

Keywords: CSR expenditure, Financial leverage, Firm age, Firm size, Fixed effect regression model, Liquidity, Profitability.

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