Did mandatory CSR compliance impact accounting Conservatism? Evidence from the Indian Companies Act 2013

Tara Shankar Shaw, Mehul Raithatha, Gopal V. Krishnan and James J. Cordeiro

Journal of Contemporary Accounting and Economics, 2021, vol. 17, issue 3

Abstract: In 2013, India became the first country in the world to require firms to spend two percent of their average profit on corporate social responsibility (CSR) activities. Taking advantage of this unique event, we examine how the mandatory CSR compliance impacts conditional accounting conservatism of Indian firms. We find a positive relation between CSR compliance and conditional accounting conservatism and this relation is stronger for firms that have stronger governance and weaker for family firms. Further, we find that current period accounting conservatism is negatively related to next period CSR spending. Our results are robust to a battery of tests and are consistent with the notion that Indian firms enhance accounting conservatism to decrease earnings to minimize CSR compliance costs. In other words, while policy makers may have intended to use legislation to increase CSR activities by Indian firms, our results suggest that firms use accounting policies and negative accruals strategically to mitigate CSR spending.

Keywords: CSR; Conservatism; Board of directors; Family firms; India (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:17:y:2021:i:3:s1815566921000382

DOI: 10.1016/j.jcae.2021.100280

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