Analyzing the impact of corporate social responsibility on corporate financial performance: evidence from top Indian firms

DOIhttps://doi.org/10.1108/CG-04-2019-0135
Pages143-157
Published date14 October 2019
Date14 October 2019
AuthorAmritjot Kaur Sekhon,Lalit Mohan Kathuria
Subject MatterStrategy
Analyzing the impact of corporate
social responsibility on corporate f‌inancial
performance: evidence from
top Indian f‌irms
Amritjot Kaur Sekhon and Lalit Mohan Kathuria
Abstract
Purpose Despite continuous researchefforts, the literature is still inconclusive about therelationship
between corporate social responsibility (CSR) and financial performance. With an aim to address this
problem,this study aims to analyze the impactof CSR on financial performance in the Indiancontext.
Design/methodology/approach Using a panel of top 137 companies from CNX-500 for 10years
(2008-2017), the impact of CSR on threeindicators of financial performance, namely, Return on Assets
(ROA), Returnon Equity (ROE) and Net Profit Margin (NPM), is evaluatedusing the panel data regression
analysis. The technique of content analysis is used to collect data on CSR from the annual reports of
selectedcompanies.
Findings The study finds that the impact of CSR on financial performance may be neutral (with ROA and
NPM) or negative (with ROE). The negative influence of CSR on ROE of firms supports the theory by
Friedman (1970) that the only responsibility of business is to maximize profits and returns for its share holders.
Originality/value After amendmentsin Companies Act, 2013, there is limited literature addressingthis
scientific inquiryin the Indian context. The study period (2008-2017) includes CSR disclosuresfrom both
periods, before reforms and after reforms, which adds to the uniqueness of this research study. In
addition, this study usesa research instrument consisting of a total of 178 CSR activitiesdivided across
46 themes for collecting data from annual reports of the companies. The utilization of such a
comprehensiveresearch instrument, forthe study, also adds to its peculiarity.
Keywords Annual reports, Corporate social responsibility, Content analysis, Financial performance,
Indian companies, Panel data regression analysis
Paper type Research paper
1. Introduction
Firms, these days, around the world, are expected to generate value for their shareholders
while acting responsibly towards societyat the same time (Kilic¸ et al., 2015). Recently, Larry
Fink, the CEO of “BlackRock”, which is the world’s largest asset management firm, wrote a
letter to the companies in which his firm makes investments; demanding every company to
deliver not only financial performance but also to show how it makes a positive contribution
to the society (Serafeim, 2018). In the present scenario where the importance of the
responsibility of business towards the societyis growing around the globe, the Government
of India has taken a major step in this direction, by making it mandatory for firms in India to
spend a fixed percentage of their profitson corporate social responsibility (CSR) activities.
The theoretical and empiricaldebates on the relationship between firms’ CSR and corporate
financial performance (CFP), since years, have made this topic quite complicated
Amritjot Kaur Sekhon and
Lalit Mohan Kathuria are
based at the School of
Business Studies, Punjab
Agricultural University,
Ludhiana, India.
Received 27 April 2019
Revised 19 July 2019
28 August 2019
Accepted 15 September 2019
DOI 10.1108/CG-04-2019-0135 VOL. 20 NO. 1 2020, pp. 143-157, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 143

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT