Financial resources, corporate social responsibility, and ownership type: Evidence from India

Abstract

Prior research on the relationship between financial resource availability and corporate social responsibility (CSR) has presented contrasting theoretical arguments and evidence. While the relationship has been theorized to be positive in developed countries, it has been argued to be negative in emerging economies due to institutional differences. However, prior theorization in the context of emerging economies has failed to consider the possibility of a non-monotonic relationship between financial resources and CSR. Although due to the high costs of obtaining external finance in emerging economies, firms may choose to prioritize capital retention over engaging in CSR activities when financial resource availability is low, this behavior is likely to change beyond a point when the level of available financial resources has crossed a reasonable threshold. In this paper, we develop this perspective and predict a U-shaped relationship between financial resource availability and CSR in emerging economies. We test and find support for this prediction on a sample of the top 500 listed firms in India. Further, we also predict and find that three dominant ownership structures (i.e., family ownership, business group affiliation, and state ownership) differentially condition this relationship. © 2022, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.