Do social policies foster innovation? Evidence from India's CSR regulation

Shubhashis Gangopadhyay and Swarnodeep Homroy

Research Policy, 2023, vol. 52, issue 1

Abstract: We examine the effect of social policies on corporate innovation using India's mandatory Corporate Social Responsibility (CSR) regulation. This regulation mandates firms with pre-tax profits above a certain threshold to spend 2 % of the profits on CSR. We demonstrate a significant bunching of companies just below the profit threshold post-regulation compared to the pre-regulation period. Firms close to the profit threshold manipulate their earnings to avoid compliance by increasing their R&D expenses. We show that, on average, firms that increase R&D expenses to avoid the regulation apply for one more patent and announce two new products. The increase in R&D expenses and patenting is concentrated in firms with a prior history of innovation. Our results suggest that social policies can generate indirect incentives for innovation.

Keywords: Innovation; Patents; R&D; CSR (search for similar items in EconPapers)
JEL-codes: G30 G38 O31 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:52:y:2023:i:1:s0048733322001755

DOI: 10.1016/j.respol.2022.104654

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