THE INTERPLAY OF MANDATORY CORPORATE SOCIAL RESPONSIBILITY EXPENDITURE AND CREDIT RATINGS

Abstract

This study explores the effect of mandatory Corporate Social Responsibility (CSR) expenditure on the credit ratings of Indian-listed firms. The sample for the study is 259 Indian listed firms evaluated by using panel regression. The study uncovers a positive connection between mandatory CSR spending and long-term credit scores, indicating that firms adhering to CSR requirements tend to enjoy elevated credit ratings. While overspending negatively impact the credit rating of the firm. India is only country where CSR expenditure as per percentage of profit is mandatory by law. This study contributes the growing literature on mandatory CSR focusing on its impact on credit ratings. The finding can help the corporate leaders to make strategic financial planning related to CSR expenditure and credit rating optimisation. With the help of this study, we provide empirical evidence that mandatory CSR expenditure significantly improves a firm’s Credit ratings in an emerging economy such as India. This study is helpful for policy makers to mandate the corporate social responsibility and implementing CSR related laws.