Corporate social responsibility, political donation reform, and accounting conservatism: evidence from India
Sudipta Majumdar, Kousik GangulyPurpose
The study aims to explore the impact of firms’ corporate social responsibility (CSR) activities on accounting conservatism. It further examines the moderating role of political donation reform (PDR) on the above relationship. In addition, the study delves into how heterogeneous firm characteristics, like promoter control, firm size, firm age and business group affiliations, affect this interplay.
Design/methodology/approach
The study relies on difference-in-difference (DiD) analysis and a panel fixed-effects model to analyse unbalanced panel data from 2,657 Indian non-financial firms spanning the period from 2015 to 2024. Finally, the study conducts placebo experiments to address the endogeneity concern.
Findings
The study finds that firms with higher CSR contributions tend to follow more accounting conservatism. However, the degree of conservative practices diminishes for CSR firms during the post-reform period. With the implementation of PDR, the positive impact of CSR on accounting conservatism becomes more pronounced, particularly in firms with strong promoter control. In contrast, firms with weaker promoter control, particularly those that are smaller, newer and enjoy business group affiliations, often adopt CSR more strategically, leading to less conservatism after the reform.
Originality/value
The study is unique as it examines how an institutional reform, such as PDR affects the dynamics of accounting conservatism in CSR-engaged firms. The study further checks the moderating impact of promoter holding and business group affiliations. To the best of the authors’ knowledge, this study is the first research integrating these aspects.