The Implications of Mandatory Corporate Social Responsibility (CSR) on Firms

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Recently, governments around the globe are reconsidering the role that firms play in overall societal development. As agentic actors, many governments have implemented policies that explicitly ask firms to share the responsibility of mitigating social, economic, and environmental problems prevalent in society. While countries such as Australia, China, Denmark, France, Malaysia, and South Africa now require firms to disclose their corporate social responsibility (CSR) activities, countries including India, Indonesia, and Mauritius have mandated firms to perform CSR activities. Such institutional transitions—including nonfinancial disclosure requirement and mandatory CSR policies—reflect a global movement that leads us to revisit the dominant assumption that CSR is voluntary in nature (Knudsen & Moon, 2022). Some questions remain unaddressed: What happens when CSR is mandated? Does forcing firms to engage in CSR activities fundamentally change the established relationships in the CSR literature— namely, the relationships between CSR and CFP, board diversity and CSR, and CFP and CSR? The topic of mandatory CSR has been less explored by management scholars despite its increasing relevance. This dissertation is one of the initial attempts to fill this gap. Leveraging the mandatory CSR policy implemented by the government of India, I use three studies to examine the implications of mandatory CSR on firms. The first study examines the relationship between firms’ prior CSR engagement and stock performance around the announcement that CSR be mandated for large firms in India. I also investigate the conditions—in particular, R&D intensity and marketing intensity—that could mitigate the negative reaction of shareholders around the announcement. I propose the mechanisms through which shareholders’ perceptions about CSR change if CSR is imposed on firms. In the second study, I examine how the presence of (stigmatized) lower-caste directors on boards influence: (1) firms’ specific CSR activities in favor of lower-caste communities, and (2) overall CSR engagement—which benefits society at large. In addition, I investigate whether lower-caste directors with a higher decision-making authority are more likely to overcome their concern about stigmatized identity. Finally, in the third study, I integrate the behavioral theory of firm and prospect theory to test the effects of consistent and inconsistent performance feedback on CSR behavior of firms. Altogether, the findings from these studies unravel the uncharted academic terrain of mandatory CSR—deepening and broadening understanding about CSR.

Business Administration, Management