The IUP Journal of Corporate Governance
The Implications of CSR Spending on Firm's Performance: A Study of Section 135 of the Indian Companies Act, 2013

Article Details
Pub. Date : Oct, 2020
Product Name : The IUP Journal of Corporate Governance
Product Type : Article
Product Code : IJCG31020
Author Name Perumalraja R, Natarajan P, Azhaguraja N and Thiyagarajan S
Availability : YES
Subject/Domain : Management
Download Format : PDF Format
No. of Pages : 17

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Abstract

Today's corporate world has realized the importance of spending a share of profit towards societal well-being and environmental protection. In line with that realization, the Indian Companies Act 2013 under Section 135 made that spending mandatory. This paper empirically tested the compliance level of Indian corporates in terms of allocation of firms' earnings and the extent of utilization of the same towards Corporate Social Responsibility (CSR) activities. Companies have started accounting for the unspent amount every year. Besides, analysis and results of this paper reveal that there is a positive relationship between CSR spending and firm's profit. It was witnessed empirically by analyzing four years' data of Nifty 50 and BSE 30 companies. Panel regression and Gaussian Mixture models were used and tested. It is found that both the NSE and BSE listed companies' previous year CSR spending had a positive impact on the current year's profits.


Description

Business is created by society anticipating that it will aid the society and vice versa. Social responsibility is an obligation of business to account for the interests of several groups that constitute society beyond the consideration of profit. ISO 26000:2010(en) defines Corporate Social Responsibility (CSR) thus: "The responsibility of an organization for the impacts of its decisions and activities on society and the environment, resulting in ethical behavior and transparency which contributes to sustainable development, including the health and well-being of society." CSR means the portion of the profit spent on the development of the society by a firm to show their gratitude towards the society for utilizing the natural resources and public utility services directly or indirectly.

From a theoretical point of view, CSR is not a new concept; it can be traced back to the early Roman laws which stated that corporates have social responsibility (Chaffee, 2017). In the

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