Archive · 9 Jan 2026
Mandatory CSR Spending May Lower Investor Confidence: IIM Study
A new study by IIM Lucknow found that when companies in India are required to spend money on Corporate Social Responsibility (CSR), it might make investors less confident.
This is because investors see this spending as a cost they have to pay, rather than a good investment.
The study looked at data from 484 companies over seven years and found that this kind of spending can make it more expensive for companies to borrow money.
However, companies in the service sector, like banks or hotels, might benefit from this spending because it can improve their reputation.
The study suggests that if companies truly care about CSR and make it part of their core values, they can actually gain financial benefits.
Mandatory CSR spending can reduce perceived corporate benefits, leading to lower investor confidence and a higher cost of equity for Indian companies.
The study analyzed data from 484 Indian companies from 2014 to 2020, focusing on poverty alleviation initiatives under the CSR mandate of the Companies Act, 2013.
The Ohlson and Juettner-Nauroth (OJ) model was used to estimate the implied cost of equity by incorporating expected earnings growth and payout ratios.
The study found a positive correlation between CSR expenditure on alleviating poverty and the implied cost of equity (CoE) for Indian companies.
Service sector firms showed a contrasting trend, where current year CSR spending lowers their CoE, unlike firms in other sectors.
- Who
- Indian Institute of Management (IIM) Lucknow
- What
- A study on the impact of mandatory CSR spending on investor confidence and cost of equity
- When
- The study analyzed data from 2014 to 2020
- Where
- India
- Why
- To understand how mandatory CSR spending affects investors' perspectives and financial risk assessments
- Study Conducted By
- IIM Lucknow
- Journal Published In
- Journal of Accounting in Emerging Economies
- Time Period Analyzed
- 2014 to 2020
- Number of Companies Analyzed
- 484
- Model Used
- Ohlson and Juettner-Nauroth (OJ) model
- Key Finding
- Positive correlation between CSR expenditure and implied cost of equity (CoE)
- Exceptional Sector
- Service sector firms show a contrasting trend