Does Corporate Social Responsibility Yield Returns? A Study of Indian Firms: There Is an Increasing Call for Companies to Instigate Corporate Social Responsibility Initiatives, but Does It Give Those That Do a Competitive Edge?

By Bhattacharyya, Asish K.; Nag, Tirthankar | Financial Management (UK), November 2012 | Go to article overview

Does Corporate Social Responsibility Yield Returns? A Study of Indian Firms: There Is an Increasing Call for Companies to Instigate Corporate Social Responsibility Initiatives, but Does It Give Those That Do a Competitive Edge?


Bhattacharyya, Asish K., Nag, Tirthankar, Financial Management (UK)


Perspectives on why firms invest in CSR

A few decades ago, activities in the domain of corporate social responsibility (CSR) were discretionary for business firms. They were philanthropic in nature. However, increasing societal expectations that large companies with huge managerial, technological and other resources should get involved in improving the quality of life of the community that provides legitimacy to doing business, have made it almost mandatory for respected companies to invest in CSR activities. The recent spurt in activities has derived from emerging themes such as sustainability, corporate citizenship and responsible companies. In the past two decades, academic research has placed due emphasis on the CSR obligations of firms. In emerging economies such as India, CSR is receiving significant attention from government, academics and civil societies.

Recent discussions in India indicate that there may be efforts to incorporate mandatory CSR spending norms in the Companies Bill 2011, which is under consideration of its Parliament. The proposal that companies of a certain size should spend two per cent of profit on CSR activities has been met with a lukewarm corporate response. Although researchers have been studying CSR for about the past 50 years, only recently has there been a shift in setting from Western to emerging economies. Thus, it is interesting to examine CSR activities carried out by firms and explore linkages, if any, between CSR strategies followed by organisations and their economic performance.

One of the issues around social responsibility relates to the existence of two competing perspectives - whether organisations address stakeholder interest due to purely economic reasons or due to the intrinsic merit of doing so. Empirical studies carried out by some researchers support the perspective of economic motivations as the driver for addressing stakeholder needs. Also, there are numerous examples of how addressing social needs leads to a competitive advantage for firms.

Starting with a limited reference by Ansoff, research on corporate stakeholder management has grown rapidly with the works of leading researchers such as Freeman, Mintzberg, Donaldson & Preston, Carroll, Mendelow and others. Focusing more specifically on social stakeholders, researchers have tried to examine the social and economic performance of firms and explore whether firms performing well on social measures also display better economic performance. The research challenges range from relating social and economic performance to developing a fine-grained understanding of stakeholder groups, and finally questioning whether normative and descriptive research can be viewed separately.

The results of empirical research into CSR and its linkages with firm performance, carried out mostly in developed countries have, surprisingly, failed to reach any particular conclusion. Some studies have suggested a negative association between CSR activities and a firm's financial performance, mainly because increased costs could have been better utilised elsewhere in the value chain of the firm. Others have reported a positive association in terms of employee and customer goodwill. Some studies have even suggested that future research can focus on prior firm performance influencing the CSR agenda and not the other way around.

Corporate stakeholder theory suggests that a firm's value depends on both explicit and implicit claims and that a high CSR image may lower costs of implicit claims, thus leading to higher financial performance. Other studies hold the view that supply and demand of investment opportunities in firms pursuing CSR activities determines the nature of linkages with the firm's market value, and that an unfavourable supply/demand position may destroy the market value of a firm.

The objective of our research was to:

* Understand CSR reporting by Indian firms and the focus of CSR activities.

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Does Corporate Social Responsibility Yield Returns? A Study of Indian Firms: There Is an Increasing Call for Companies to Instigate Corporate Social Responsibility Initiatives, but Does It Give Those That Do a Competitive Edge?
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