Assessing Impact of Mandatory CSR on Food Industry

Foram Mehta and Satish Y. Deodhar

No WP2014-12-08, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: India is the only country in the world which has now made CSR spending mandatory. Food industry is not an exception to this requirement. In a developing country like India, food industry has a larger social purpose, for food and nutrition are inextricably linked to hunger and health. At the same time, however, food firms are not philanthropic institutions either. We address the issue of whether or not making CSR activity mandatory has impacted the food industry negatively. Events that are expected to affect an industry negatively get reflected in significant lowering of firms’ stock prices, for they capture the current and future profitability of firms. We conduct an event analysis by considering stock prices of food firms around two important events – passing of the CSR bill in two houses of parliament. We find that stock prices of select top performing food firms and select food firms that barely qualify for the CSR norms have not been adversely impacted by the two events. This means that food firms can turn mandatory CSR activities into an opportunity to build brand value. Using their core competence, they could spend on delivering nutrition-rich packaged foods, drinks, potable water, and neutraceuticals to disadvantaged communities.

Date: 2014-12-14
New Economics Papers: this item is included in nep-agr
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