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Social responsibility or smoke screening: evidence from India

Nemiraja Jadiyappa (Department of Finance, Indian Institute of Management Raipur, Raipur, India)
Bhavik Parikh (Department of Accounting and Finance, Gerald Schwartz School of Business, St Francis Xavier University, Antigonish, Canada, and Brian Mulroney Institute of Government, St Francis Xavier University, Antigonish, Canada)
Namrata Saikia (Department of Finance and Legal Studies, Indiana University of Pennsylvania, Indiana, Pennsylvania, USA)
Adam Usman (Department of Finance and Business Law, James Madison University, Harrisonburg, Virginia, USA)

Sustainability Accounting, Management and Policy Journal

ISSN: 2040-8021

Article publication date: 2 June 2021

Issue publication date: 3 August 2021

292

Abstract

Purpose

The purpose of this study is to examine whether the choice of a firm to spend resources on corporate social responsibility (CSR) activities is associated with its actual social impacts as measured by its energy consumption and the quality of its financial reporting. Based on legitimacy theory, the authors argue firms in India use CSR expenditures as mere smoke screens to build a positive public image.

Design/methodology/approach

By using energy consumption per unit of sale as a measure of real environmental impact, the authors model firms' CSR investment behavior. Additionally, the authors use earnings management measures to examine whether CSR spenders engage in manipulating reported earnings, a practice socially responsible firms would not engage in. These hypotheses are tested using a panel data set of Indian firms for the period 2012–2014.

Findings

Consistent with legitimacy theory, the authors show firms that participate in socially undesirable activities such as heavy energy consumption and accounting manipulation are more likely to pursue CSR voluntarily. Additionally, the authors find evidence suggesting firms that voluntarily engage in CSR tend to have lower firm values.

Originality/value

This study examines the social and environmental concerns of firms that invest in CSR, especially in an emerging market context. The findings help understand the motivation for CSR behavior of corporate firms and may well explain the observed negative relationship between firm value and voluntary CSR spending observed in many emerging market contexts, especially in India.

Keywords

Acknowledgements

This paper forms part of a special section “Sustainability Accounting, Management and Policy in Emerging & Developing Economies”, guest edited by Diogenis Baboukardos, Eshani Beddewela and Teerooven Soobaroyen.

Authors would like to thank the anonymous referee, editor, Julie Ngo and the participants of FMA Virtual Conference 2020, Session (V126), for their valuable comments.

Citation

Jadiyappa, N., Parikh, B., Saikia, N. and Usman, A. (2021), "Social responsibility or smoke screening: evidence from India", Sustainability Accounting, Management and Policy Journal, Vol. 12 No. 4, pp. 767-787. https://doi.org/10.1108/SAMPJ-03-2019-0086

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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