When do firms overspend on CSR? The impacts of foreignness and institutional distance

Abstract

Recent research has shown that corporate social responsibility (CSR) is no longer purely voluntary; it is increasingly subject to government mandates or institutional pressures requiring firms to spend a prescribed amount on CSR. This raises an important question for subsidiaries of multinational enterprises (MNEs) operating within a host country: should they spend more than these prescribed amounts (i.e., overspend) on CSR? Drawing from institutional theory and legitimacy perspectives, we argue that subsidiaries of foreign MNEs are less likely to overspend on CSR when compared to local firms. Additionally, we contend that among foreign subsidiaries, the institutional distance—both in absolute and directional terms—between the MNE's home country and the host country impacts CSR overspending. We examine these effects using a panel dataset of 3732 firms (12,093 firm-year observations) over the period 2015–2021 in India, where CSR spending has been made mandatory for large and medium enterprises. Our findings contribute to the literature on MNEs' CSR activities in host countries.