Ownership,Leverage and Corporate Social Responsibility: Empirical Evidence from NSE-listed Companies

Abstract

The Companies Act of 2013 in India has reintroduced the corporate social responsibility debate in the Indian corporate sector. Since the Act’s implementation, corporate social responsibility spending has become mandatory, with Indian companies required to spend at least 2% of their net profits on corporate social responsibility activities. However, there is no upper limit to this spending. In the light of this mandate, it is interesting to examine if ownership concentration and the firm’s financial leverage have an association with excess corporate social responsibility spends. We analyze 1,760 National Stock Exchange (NSE)-listed firms from 2015 to 2021 and find that (a) high leverage negatively impacts excess corporate social responsibility spending, indicating leveraged firms are less likely to make discretionary expenditures, and (b) higher promoter equity is positively linked to excess spending, suggesting that promoters with greater equity have more decision-making power and are more likely to exceed mandated requirements.