Tuesday, October 16, 2018

18 October 2018: Incentives for Corporate Social Responsibility in India: Mandate, Peer Pressure or a Crowding-Out Effect

Madhu Khanna

The Companies Act of 2013 went into effect in India on April 1, 2014 making it the first law in the world to mandate that companies commit 2% of their profits on corporate social responsibility (CSR) initiatives. However, the Act did not impose penalties on firms that failed to do so, requiring them only to disclose the reasons for non-compliance publically. We use panel data for 39,736 firms with a difference-in- difference model to estimate the average treatment effect of the Act on firms ‘eligible’ for compliance with the Act and in particular to investigate the role of peer pressure in influencing a firm’s response to the Act in 2015 and 2016. We also apply the Regression Discontinuity Design method to estimate the average effect of treatment assignment for units near the threshold of eligibility for compliance with the Act. We find that the Act led to a statistically significant increase in the likelihood of reporting of CSR expenditures and in the level of CSR expenditures by eligible firms and this increase was not accompanied by crowding out of other charitable donations by firms. The effect of the Act was also positive and statistically significant on firms at the threshold of criteria for compliance with the Act. In addition to the direct effect of the Act on CSR expenditures, we find strong evidence of peer pressure in motivating CSR by firms and of these peer pressures being stronger on eligible firms.

Date: October 18, 2018
Time: 03:30 P.M.

Seminar Room 2,
Indian Statistical Institute Delhi Centre,
7, S. J. S. Sansanwal Marg,
New Delhi-110016 (INDIA)


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