Whether and Where to Spend Mandatory CSR?

Abstract

Expenditure on Corporate Social Responsibility (CSR) was made mandatory under a 'comply or explain' approach by the Companies Act, 2013, applicable from year ending 2014. The Act also specifies various heads under which a company can spend. Using business school students, we conduct an experiment to examine two things (1) the impact of companies' choices regarding how much to spend, and (2) companies' choices regarding which head to spend under, on investor likelihood of investment. Our results show that investors neither value nor discount companies that spend more than the minimum amount on CSR and further that they are less likely to invest in companies that spend on incubation and they value such companies lower as compared to companies that spend on education or gender issues. Our results are in line with the empirical data pertaining to the amounts spent by companies.