Investorsʼ view of mandatory corporate social responsibility as a public policy: The case of section 135 of the Indian Companies Act 2013

Abstract

Abstract We investigate investor sentiment regarding mandatory corporate social responsibility (CSR) as a public policy. Using the event study methodology, we analysed the cumulative abnormal returns (AR) of companies impacted by Section 135 of the Indian Companies Act 2013. Our findings suggest that setting a CSR expenditure threshold may lead companies lagging in CSR to over‐invest, potentially hindering value maximisation. Specifically, we observed that the cumulative AR for companies lagging in CSR are lower than those leading in CSR. Therefore, mandating CSR practices may be counterproductive for value creation. This event study is one of the first to evaluate the impact of mandatory CSR as public policy on CSR‐leading and lagging firms.

Keywords

• corporate social responsibility
• Indian company act, 2013
• mandatory corporate social responsibility
• public policy
• stakeholder salience