Analysing the impact of mandatory Corporate Social Responsibility on manufacturing firms in India

Abstract This paper analyzes the impact of India’s mandatory Corporate Social Responsibility (CSR) policy under Section 135 of the Companies Act, 2013, using firm-level panel data capturing the trends in CSR expenditure in the post-policy period. With the CSR reform, India became the first country to mandate CSR. This paper uses a range of panel econometric techniques, including DID. Using a Difference-in-Differences methodology, this paper analyzes whether mandatory CSR regulation led to differential changes in CSR expenditure and innovation behavior between polluting and non-polluting firms using a balanced panel of 605 Indian firms spanning 2006–2021. The findings show that, with the CSR policy implementation, polluting firms demonstrate a smaller increase in CSR expenditure than non-polluting firms, indicating heterogeneous responses to mandatory CSR policies. These results confirm that mandatory CSR generates differentiated compliance patterns based on firms’ pollution intensity. The findings possess important implications for the design of environmental policies to address externalities in pollution-intensive sectors.