Is Institutional Environment the Only Force Behind Corporate Social Responsibility Disclosure? An Insight into Indian Companies

Abstract

Purpose: Companies Act, 2013, has brought a revolution in the regime of corporate social responsibility (CSR) disclosure in India, making it a mandatory practice for the corporate sector. The purpose of this article is to examine the impact of statutory provisions on the extent of CSR disclosure in India.

Design/methodology/approach: This article considers an effective sample of 144 companies selected on the basis of average market capitalisation. The study relates to the year 2015–2016, which represents the time period when companies started reporting CSR issues mandatorily. CSR disclosure scores are calculated by using content analysis. Both univariate and multiple regression models are applied to check the effect of statutory provisions on CSR disclosure.

Findings: The results indicate that variables namely NETWORTH, TURNOVER and DOMESTIC dummy have positive and statistically significant impact on CSR disclosure scores. However, TOBINSQ, representing profitability of companies, has negative and statistically significant impact on CSR disclosure scores, thus leading to anxious results.

Research limitations/implications: Factors affecting CSR disclosure score have been selected on the basis of new statutory provisions introduced by the Ministry of Corporate Affairs. Certain other vital attributes, especially related to corporate governance variables, too can be controlled for so that results have strong implications for companies.

Practical implications: The empirical findings of this article implicate that institutional setup of a country has a strong bearing on the disclosure practices of the corporate sector. Thus, the authors strongly recommend to the statutory bodies that it is not sufficient just to make statutes but their implementation too should be ensured.

Originality/value: With specific reference to India, mandating CSR disclosure is a recent law; so, the current study being first of its kind, would definitely add to the available literature and open gateways for future research.

Keywords

Corporate social responsibility institutional factors India regression analysis

Introduction

Researchers have highlighted many motivating factors affecting corporate social responsibility (CSR) reporting as size, age, profitability, liquidity, nationality, market share, etc. Their identification of these factors is quite overlapping and similar. The same is endorsed by many theories on CSR reporting as well. Shareholders’ theory believes the owners of capital as the major force behind CSR reporting (Friedman, 1970). The theory even leads to manipulation of accounts, in order to window dress the financial statements in the eyes of the shareholders, as long as it remains within the legal and ethical limits. Since shareholders’ theory is criticised for being too narrow in its approach, stakeholder theory prevails. It primarily considers pressure from stakeholders, namely employees, customers, NGOs, government, media, environmentalists, etc., as the motivating force behind CSR disclosure (Freeman, 1984). Lately, agency theory also purports that directors being the agents of shareholders hold a primary duty of acting in their interest. Hence, in order to fulfil their obligations, they are motivated to share CSR information. Perhaps agency theory forms the basis of many recent studies that take corporate governance variables as the attributes affecting CSR disclosure.

The nature and extent of CSR disclosure is country specific (Chapple & Moon, 2005; Dawkins & Ngunjiri, 2008; Fifka & Pobizhan, 2014). It has been witnessed in the past research that developed countries address social issues more vigorously as compared to the developing countries. Developed countries have witnessed high disclosure percentage dating back even four decades ago as suggested by studies done by Abbott and Monsen (1979) and Trotman (1979). Abbott and Monsen (1979) reported disclosure extent of 86 per cent in the sample of Fortune 500 firms. Trotman (1979) found 69 per cent disclosure percentage in Australia. Likewise, Guthrie and Parker (1990) reported disclosure percentage of as high as 98 per cent in the USA, 85 per cent in the UK and 56 per cent in Australia. Hackston and Milne (1996) revealed that in New Zealand, a good percentage of companies (83%) disclose social responsibility information. Similarly, Fukukawa and Moon (2004) found that 90 per cent of companies in Japan present CSR report. Birth, Illia, Lurati, and Zamparini (2008) found disclosures to the extent of 72 per cent with respect to Switzerland. Lungu, Caraiani, and Dascălu (2011) reported increasing trend in the quantum of social disclosure in Europe over a 3-year period 2007–2009. In contrast, developing countries pay relatively less attention in addressing social issues. The studies undertaken in developing countries reveal comparatively a lower incidence of CSR disclosure. Savage (1994) found CSR disclosure percentage of 50 per cent with respect to South Africa. Tsang (1998) reported CSR disclosure of just 52 per cent among companies in Singapore. Belal (2001) found CSR disclosure of 44 per cent only in Bangladesh. Similarly, Chaudhri and Wang (2007) showed that out of a total of 100 companies, the number of companies providing CSR information on their respective websites was quite low (30). Khan, Halabi and Samy (2009) reported that 75 per cent of companies in Bangladesh had not even devoted half a page to social responsibility activities. Bhatia and Chander (2014) found disclosure extent of just 31 per cent with respect to India.

Developing countries are largely relation-based countries. The countries that are more relation based in contrast to rule based do not report extensively on CSR issues (Lattemann, Fetscherin, Alon, Li, & Schneider, 2009). In relation-based society, laws are not transparent, and courts are under political influence. State controls the functioning of mass media, which restricts free dissemination of information. The accounting standards are weak. In addition, governments in relation-based economies are also less concerned with CSR issues due to the absence of adequate checks and balances in the legal system (Sen, 1999). Hence, such institutional framework provides little incentive to firms in developing countries to behave socially responsible and enhance disclosures. Consequently, voluntary disclosures usually take a back seat in such countries. Topics focusing on societal issues are less favoured ones on the agendas discussed in the corporate boardrooms in these countries. Actually, these countries are governed by statutory controls with less professional outlook (Gray, 1988). It is only when a guideline is made a law that it is respected and adhered to.

Perhaps because of such an environment prevailing in the country, a significant endeavour has recently been witnessed in one of the most prominent emerging countries—India. Since 1 April 2014, reporting of social responsibility information has been made mandatory in India by the Ministry of Corporate Affairs. Hence, the factors affecting CSR disclosure have turned towards those mentioned by the Ministry of Corporate Affairs, thus endorsing the Institutional Theory of disclosure. The companies operating in particular institutional environments are subject to regulative forces that shape the development of CSR. The regulative forces refer to organisation engagement into CSR practices as a result of enforcement of rules and regulations. The organisations are bound to confirm to social values set out by multitude of social actors such as NGOs, media, institutional investors, educational and other professional institutions to legitimise their business practices. These social actors exercise pressure on firms to adopt certain structures and practices that are deemed to be socially responsible (Campbell, 2007; Doh & Guay, 2006; Matten & Moon, 2008). Matten and Moon (2008) stated that understanding and adoption of CSR practices differ across countries since it has been shaped by country’s institutional frameworks. Therefore, companies’ engagement in CSR practices is contingent upon institutional environment of the country in which it operates. Numerous recent studies have examined and provide support for different institutional dynamics as a reason for variation in CSR practices in different country settings (Bashtovaya, 2014; Matten & Moon, 2008; Muthuri & Gilbert, 2011). Since 1 April 2014, the institutional forces have become dominating factors, leading to CSR disclosure in India, as, from this date, CSR disclosure has taken a mandatory shape with companies in India, and due to such institutional backup, companies are not left with much choice but to follow CSR practices.

Corporate Social Responsibility and Companies Act, 2013

In India, CSR has been practised through informal and morally defined norms in the past rather than through proper contracts. But the concept of CSR should be flexible, open ended and changed from time to time whenever the concept or the circumstances undergo a change (Ince, 1998). Thus, when it was seen that in spite of endless legal warnings and proceedings against the Indian firms, the issue of corporate social responsibility was not being prioritised in the companies’ boardrooms, the New Companies Act, 2013 (CSR provisions U/s 135 of the Act), brought about a revolutionary change in the implementation of CSR activities by the Indian corporate sector. From the voluntary regime, CSR reporting has transited to a mandatory regime. Henceforth, India became the first country to mandate spends on CSR activities through statutory provisions. Earlier, many Indian corporate houses were engaged in doing CSR activities voluntarily, but the new CSR provisions have put formal and greater responsibility on companies to set out clear framework and process to ensure strict compliance.

As per Companies Act, 2013, companies with a net worth of ₹5 billion or more, a turnover of ₹ 10 billion or more, and a net profit of Rs 500 million or more during any financial year has to compulsorily spend at least 2 per cent of average net profits (net profits before tax calculated as per section 198 of the Indian Companies Act, 1956 but exclude the profits from businesses outside India) of preceding three financial years in CSR activities. Though the threshold limit of net worth and turnover has been kept high, the threshold limit of profits will bring majority of Indian companies under the CSR net. The qualifying company has to form a CSR committee of board members consisting of three or more directors out of which one should be an independent director. It will formulate a CSR policy, recommend the amount of expenditure to be incurred on CSR activities and monitor the CSR policy from time to time. The companies are to spend the CSR amount on the development of local areas and around where it operates. The amount to be spent on the CSR activities will not be used exclusively for the benefits of employees and their family members. Further, the CSR policy is to be disclosed by the qualifying company in the Director’s report and on its website. Baseline surveys, social impact assessment and meticulous evaluation, including documentation, are mandatory along with training and r-orientation of the staff. The CSR amount unused in a particular year will be carried forward to the following year. CSR budget itself hence is non-lapsable. With regard to failure to spend the requisite amount, the Act states that the company shall have to provide sufficient reasons for not spending the allocated CSR budget. While no specific penalties are contemplated in the Act with respect to CSR, Section 450 and Section 451 provide for general penalties for flouting the rules and repeat offences. This amendment brought in by the Companies Act is a milestone for Indian companies.

Redefining Carroll’s Approach of Corporate Social Responsibilities

Carroll (1991) organised different CSRs as a four-layered model and called it the pyramid of responsibilities. The four different responsibilities—economic, legal, ethical and philanthropic—are the layers of the pyramid. Economic responsibilities are the ones which a business ‘must do’ and require that the business should be profitable. It should be able to utilise the resources of the society in the most optimum manner. Legal responsibilities are the ones that the business ‘has to do’ and require that business should obey the law. Ethical responsibilities are the ones that a business ‘should do’. These are not required but expected by the society. These go beyond the minimum legal requirements. Philanthropic responsibilities are at the top of the pyramid. These are the ones that the business ‘might do’ for the society. Philanthropy is discretionary in nature. Society expects business to be a good corporate citizen and improve the quality of life for the society. It should practise social responsibilities voluntarily for the support of the community, eradication of hunger and poverty, education of the masses, etc. The Carroll’s Approach of CSR is presented in Figure 1.

A minute analysis of Carroll’s CSR Approach suggests that true CSR begins after the fulfilment of legal responsibilities, that is, to be profitable and legal is not a choice. Companies have to show economic competence and abide by the law. First two layers are the minimum required by the companies. However, companies cannot be forced to perform ethical and philanthropic responsibilities—it is a choice. But in India, the Companies Act, 2013, has brought CSR activities entirely under the legal statutes with the incorporation of Section 135 of Schedule VII of the Act. The discretion to practise CSR has been withdrawn, and it is no longer a choice. It is now a law. The corporate scams and irresponsibility prevailing in the past has mandated the economically viable companies of India to practise CSR as a legal provision. CSR was considered beyond the minimum legal requirement, but the revision in Companies Act, 2013, has coaxed companies to follow CSR as the minimum legal requirement. When professionalism fails, statutory controls supersede (Gray, 1988). Thus, the new mandatory provisions with respect to corporate social responsibility seem to have revised the Carroll’s approach of CSR. The same is shown in Figure 2.

Figure 1.

Source: Carroll (1991, 1979, 2004).

Figure 2.

Source: The authors.

Thus, the motivating factors are perhaps the preliminaries of turnover, net worth and profitability yardstick given under the Act (Section 135, Companies Act, 2013). Those companies that would satisfy any of these three minimum criteria have to compulsorily follow CSR disclosure. Philanthropy is no longer discretion for these companies. In the light of the same, the present paper evaluates if these preliminaries are really the motivating forces behind more CSR disclosure or some other factors are also significant in influencing the reporting of social issues in India.

Review of Literature

There is multiplicity of factors that lead to diverse practices of discharging social responsibilities in the corporate sector. A synoptic view of studies explaining the relation of various variables with social responsibility is given in Table 1.

The review of literature suggests that multiple factors varying across countries influence CSR disclosure. These factors have been chosen voluntarily by researchers as per CSR practices prevailing in their respective countries, to the best of their knowledge and the literature available. Researchers in India too have taken up similar factors as evident from review of Indian studies. But now CSR disclosure has been made mandatory in India for companies that are profitable; have high net worth; and high turnover. In the light of this major change, it becomes imperative to see if these factors are significant in affecting CSR disclosure in India. Thus, the main aim of the article is to examine the impact of statutory provisions on CSR disclosure. Since this is a recent law, the current study, being first of its kind, would definitely add to the available literature and open gateways for future research.

Table 1.

Synoptic View of Review of Literature on Factors Affecting CSR Disclosure

Author	Sample/Country	Variables Used	Nature of Variables	Sig. Variables
Singh (1982)	40 Public sector enterprises/India	AgeSize: total assets and net salesRate of returnEarning marginNature of industry	Firm specific and industry specific	Size in terms of total assetsIndustry
Cowen, Ferreri, and Parker (1987)	134 Companies/USA	SizeIndustryProfitabilityPresence of social responsibility committee	Firm specific, CG and industry specific	SizeIndustryPresence of CSR committee had a positive impact on human resource disclosure
Belkaoui and Karpik (1989)	23 Corporations/USA	Social performance measured through reputation indexEconomic performance measured through rate of return and differential stock price returnsPolitical visibility measured as size, capital intensive ratio and systematic risk (beta)Contracting and monitoring costs measured as leverage and dividend payout rates	Firm specific	Social performanceSize of the firm and Systematic riskLeverage
Chander (1989)	20 Public and 24 private sector companies/India	Size of a companyProfitability	Firm specific	Size
Patten (1991)	128 Companies listed in fortune 500 list	Public pressure (size and industry)Profitability measured as return on assets (ROA), return on equity (ROE), 5-year average ROE, 1-year lagged ROA, and change in net-income	Firm and industry specific	SizeIndustry
Roberts (1992)	80 Firms/Fortune 500 lists	IDVs:Stakeholder powerStrategic postureEconomic performance (average annual change in return on equity of a firm and systematic risk)Control variables:Industry,SizeAge of the firm	Firm specific and industry specific	Stakeholder powerStrategic posture Economic performanceAge and Industry
Hackston and Milne (1996)	47 Companies/New Zealand.	Company size (log of market capitalisation, log of sales and log of total assets)Profitability (ROE, ROA of current year and in addition, 5-year (1988–1992) averages of ROA and ROE)Industry (high-profile and low-profile )Overseas listing	Firm specific and industry specific	Size (log of sales)IndustryOverseas listing
Kumar (1996)	100 Companies/India.	SizeAgeProfitability	Firm specific	SizeAgeProfitability
Branco and Rodrigues (2006)	49 Companies/Portugal.	IDV’s:International experienceCompany sizeIndustry affiliationConsumer proximityEnvironmental sensitivity Media exposureControl variables:ProfitabilityLeverage		Disclosure in case of annual reports: SizeMedia exposureDisclosure in case of web reporting: Size
Naser, Al-Hussaini, Al-Kwari, & Nuseibeh (2006)	21 Companies/Qatar	Growth in assetsDividend paidLeverageProportion of shareholdings of individuals, government institutions, majority shareholdersMarket capitalisation	Firm specific	SizeLeverageCorporate growthProportion of shareholdings of government institutionsDividend payout ratio Individual and majority shareholding
Mohd Ghazali (2007)	87 Non-financial companies/Malaysia	Ownership concentrationDirector ownershipGovernment ownershipSize (Market capitalization)Profitability (PBT/TA)Industry	Firm specific and industry specific	Government ownershipSize Director ownership
Brammer and Paveline (2008)	447 Companies/USA	DVs: Environmental disclosure which was categorised into five parts, that is, policy, initiative, improvement, auditing and targetsIDVs:SizeLeverageProfitabilityBoard composition (number of non-executive directors)Media exposureEnvironmental finesOwnership concentrationIndustry	Firm specific and industry specific	SizeLeverage and ownership concentration were negatively related to policyPresence of non-executive directors negatively affected environmental initiativeChemical industry was significantly and positively related to policy and improvementFinance industry (-) with all DVs
Latteman et al. (2009)	33 Indian companies and 35 Chinese companies in Forbes 2000 companies list	Country level (rule-based vs relation-based government)Industry level (six industries, representing the type of industry)Firm level (composition of board of directors, dual role of CEO, size)	Firm specific, industry specific, corporate governance and macro variables	SizeCEO dualityPercentage of external members in the board
Liu and Anbumozhi (2009)	175 Companies/China	Government power (GP) as measured by environment sensitivityShareholder’s power (SP) as measured by equity held by top 10 shareholdersCreditor power (CP) measured as firm’s leverage, that is, debt/total assetsControl variables:Age of companySize (log of total assets)Profitability (ROE)Place (whether location in developed or developing region of China)Learning capacity (employees having college education level)	Firm specific	Government PowerSize
Prado-Lorenzo, Gallego-Alvarez, and Garcia-Sanchez (2009)	99 Non-financial firms/Spain	DVs:Corporate social reporting practice which was divided into three components, namely validation, disclosure of information and GRI formatIDV’s: Shareholder power andNumber of independent directors.Control variables: Government power as measured by size and industryCreditors’ power as measured by debt-equity ratioStrategic posture (ISO certifications)Economic performance measured by ROA	Firm specific, corporate governance	Size was negatively related to disclosure of information but positively related to GRI formatIndustry classification was insignificant except for transportation industry which was positively related to validationCreditors’ power was negatively related Validation and positively related to GRI FormatStrategic posture had positive relation with CSR
Reverte (2009)	46 Companies/Spain	Size (log of market capitalisation)Industry sensitivityProfitability (ROA)Ownership concentrationInternational listingMedia exposureLeverage (debt-to-equity ratio)	Firm specific and industry specific.	Media exposureSize of the firmEnvironmentally sensitive industries had positive association with CSR
Shirley et al. (2009)	117 Companies/Malaysia	Size Industry	Firm specific and industry specific	CSR web reporting was not influenced either by size or by industry
Tagesson, Blank, Broberg, and Collin (2009)	267 Corporations/Sweden	Size (turnover and number of employees)IndustryProfitability (ROE)Ownership concentration (number of votes controlled by the five largest owners)Ownership identity (state owned or privately owned)	Firm specific and industry specific	Size and profitabilityState-owned corporations disclosed more CSR information than privately owned corporationsAlso, significant difference existed in CSR disclosure between industries
da Silva Monteiro and Aibar-Guzmán (2010)	109 Companies/Portugal	Firm sizeStock market listingProfitabilityForeign ownershipEnvironmental certificationIndustry membership	Firm specific and industry specific	Firm’s sizeStock market listing
Li and Zhang (2010)	692 Manufacturing companies/China	Corporate ownership dispersion (measured as shareholding of the largest shareholder for the firm)Political interference (measured by regional economic development, that is, log form of GDP per person)Control variables: Size (measured by total assets)Institutional ownershipEmployee power (no of employees/total assets)LeverageProfitability (ROE)Tobin’s Q		In case of state-owned companies, corporate ownership had positive and significant relation with CSR whereas political interference (per GDP) had negative relationIn case of non-state owned-companies, ownership dispersion had negative relation whereas political interference was found to be insignificantFirm’s size, employee power and profitabilityLeverage and Tobin’s Q
Saleh, Zulkifli, and Muhamad (2010)	200 Companies/Malaysia	DV: Institutional ownership (IO)IDV: Corporate social responsibility disclosureControl variables:Employee relationsCommunity involvementProductEnvironment	Firm specific	Positive and significant relation between CSRD and IOEmployee relation and product have significantly positive relation with IOCommunity involvement and environment had negative relationship with IO
Gamerschlag, Moeller, and Verbeeten (2011)	130 companies/Germany	VisibilityShareholder structureRelationship with their US stakeholdersProfitabilitySizeIndustry	Firm specific and Industry specific	VisibilityShareholder structureRelationship with their US stakeholdersProfitabilitySizeIndustry
Hussainy, Elsayed, and Abdelrazek (2011)	111 Financial and non-financial companies/Egypt	Company sizeProfitabilityLiquidityGearingOwnership typeAudit type	Firm specific	Profitability
Lungu et al. (2011)	50 largest companies/Global Fortune 500 Classification	Size (assets and revenues)Profitability (ROE)	Firm specific.	Change in revenues and Return on Equity.
Bayoud, Kavanagh, and Slaughter (2012)	Quantitative analysis: 40 companies/LybiaQualitative analysis: Interviews from 31 managers/Lybia	Age of companySize of companyIndustry type	Firm specific and Industry specific	Age Industry
Giannarakis (2014)	100 Companies/ USA	Board meetingsAverage age of board membersPresence of women on the boardBoard sizeCEO dualityLeverageProfitabilityCompany sizeBoard CompositionBoard’s Commitment to CSR	Firm specific and corporate governance	Company size, board’s commitment to CSR and profitabilityFinancial leverage
Altuner, Çelik, and Güleç (2015)	2011: 156 Firms2010: 144 Firms2009: 137 Firms2008: 135 Firms2007: 133 Firms/Turkey	Studied linkage between intellectual capital (IC), corporate governance (CG) and corporate social responsibility (CSR).Control variables (unsystematic factors): Short term solvencyLong term solvencyProfitabilityAsset utilisation	Firm specific	Direct tests revealed statistically significant differences between three categoriesThe results of indirect tests suggested that there was strong effect of IC, CG and CSR on the unsystematic factors
Aoi, Asaba, Kubota, and Takehara (2015)	721 Family and non-family firms/Japan	Proportion of shares owned by founding families (%FF)CEO from founding family (dummy)Cross term of %FF and CEO from founding familyProportion of board members from founding familiesControl variables:log of Market value of equityBook-to-Market ratioRetained Earnings to Total AssetsLog of ageA dummy of whether firm appears in first section or second section of Tokyo Stock Exchange	Firm specific and corporate governance	Family ownershipFamily-based CEOFirm’s size
Muttakin and Subramaniam (2015)	116 Non-financial companies/Bangladesh	CSR disclosureFirm size (log of total assets)AgeLeverageProfitability measured through ROA (EBIT/TA)Board diversity (director gender and nationality)CEO duality (1 if same 0 otherwise)Ownership indicated by proportion of shares held by CEO’s familyProportion of female directors on board	Firm specific and corporate governance	Size Profitability Female directorshipForeign directorshipFamily ownership
Akin and Yilmaz (2016)	33 Banks/Turkey	CSR disclosureDummy for stock exchange listingOwnership dummyBank typeYear dummiesLoan rationEquity to total assetsNet income to total assets	Firm specific	SizeYear dummiesCommercial banks dummyPublic bank dummy
Zaid and Nasiri (2018)	34 Non-financial listed companies/Palestine	CSR disclosureFirm size (log of total assets)Profitability measured through ROA (EBIT/TA)Firm ageLeverageService sector dummyInvestment sector dummyIndustrial sector dummy	Firm specific	Firm size (log of total assets)Profitability Firm’s age

Source: The authors.

Database and Research Methodology

Top BT 200 companies ranked by average market capitalisation in 2015–2016 represent the universe of the study. However, companies that did not report CSR information or did not follow financial year of reporting were left out because uniformity in time is quite vital for generalisation of results. Thus, as a result of the above filters, an effective sample of 144 companies was achieved.

The study relates to the year 2015–2016, which represents the time period when companies started reporting CSR issues mandatorily, as desired under the legal provisions of Section 135 of the Companies Act 2013. The financial year 2014–2015 has been dropped from the purview of this study as it is expected to be taken as an orientation period when most of the companies would be preparing for the application of mandatory parameters. It is assumed that companies would completely adapt to the new provisions by 2015–2016.

Data on independent variables are extracted from the database, ACE-equity. Annual reports of companies too have been used where the information was not available in the database. In order to calculate the CSR disclosure score, annual reports have been assessed using content analysis.

Both univariate and multiple regression models are applied to check the effect of statutory provisions on CSR disclosure. Univariate regression is run, in order to see the individual impact of various independent variables, while multiple regression model is run to see the impact of various corporate-specific attributes on the disclosure score collectively. Before applying multiple regression, number of assumptions such as normality tests, autocorrelation tests, heteroscedasticity tests and multicollinearity tests have been checked to draw meaningful conclusion.

Hypotheses Development

Based on theoretical and empirical considerations as highlighted through the review of available studies, numerous factors affect CSR disclosure. But, as per the provisions of CSR, as given by the Ministry of Corporate Affairs, India, three main financial parameters, namely net worth of companies, their turnover and profitability, would lead to enhanced social disclosure. In the light of the same, the current study incorporates these three variables along with other firm-specific variables and develops the hypotheses as follows:

Net worth: The business has a sole purpose of maximising the profits of shareholders, while obeying the law and ethical customs of the society (Freeman, 1998; Jensen, 2001). Net worth represents the residual available for shareholders as the excess of assets over liabilities. Companies that have high net worth definitely have satisfied shareholders as well as surplus resources available with them. Slack resource theory advocates that such companies can invest some margins in CSR activities. The secondary stakeholders can be tomorrow’s shareholders if the company proves itself legitimate in their eyes. Hence, to legitimise their image, companies with high net worth tend to make disclosures concerning all stakeholders than just the shareholders. Also, companies which attach greater importance to various parties, namely customers, employees, creditors, society and community at large, benefit to a large extent in terms of higher shareholder value and profitability (Magaro, 2010). From the preceding discussion, the following hypothesis is formulated:

H₁: There is positive association between net worth and the extent of CSR disclosure.

Turnover: Turnover has often been considered as a measure of size in the previous research (Adams Hill, & Roberts, 1998; Tagesson et al., 2009). The size of a company influences the social disclosure level of the corporate sector. There are several reasons for the same. First, disclosure is costly. Bigger companies generate economic efficiencies through large-scale operations (Cho & Patten, 2007; Patten, 1992, 2002), and hence, these can afford extended disclosures (da Silva Monteiro & Aibar-Guzmán, 2010). They have more resources for collecting as well as disseminating information (Buzby & Falk, 1979; Firth, 1979). Second, bigger companies are more exposed to the general public. These firms have more visibility and media exposure (Fombrun & Shanley, 1990). This tends to make them exhibit greater disclosure than their smaller counterparts (Branco & Rodrigues, 2008; Liu & Anbumozhi, 2009). Third, larger firms have diverse ownership, and in order to reduce higher agency costs, these firms disclose more (Meek, Roberts, & Gray, 1995). Fourth, signalling theory, which is in line with agency theory, endorses that the party in charge (agent) must convey/signal its credibility to the owners (principle). Large firms disclose more CSR information, in order to signal high-quality information to current and potential investors (Muttakin & Subramaniam, 2015). Fifth, large-sized companies also have wider stakeholder groups involved with them. As a result, they are under great pressure to disclose more on CSR issues (Cowen et al., 1987). Even legitimacy theory suggests that large firms make more disclosures, in order to fulfil their ‘accountability’ and societal obligations (Cormier & Gordon, 2001). Moreover, they have already encashed goodwill over the years and can now give more value addition to their stakeholders through enhanced disclosures.

With specific reference to India, the Companies Act, 2013, under section 135 has made it mandatory for companies having turnover of ₹10 billion to spend compulsorily in CSR activities. Thus, it indicates that large firms are expected to be more socially committed as compared to smaller ones, even by the law now in India. From the preceding discussion, the present study tests the following hypothesis:

H₂: There is positive association between a company’s size and the extent of CSR disclosure.

Profitability: It is brought home by previous research that profitable companies make more social disclosure to appear legitimate and justify their increased profits to the stakeholders (Lecaj & Heinrich, 2010). Also, profitable firms are more exposed to public scrutiny and face more social constraints than the ones which are less profitable (Holthausen & Leftwich, 1983). Hence, these firms have to justify that they operate within social norms (Islam & Deegan, 2010). CSR disclosure is a costly process, and profitable firms have more resources at their disposal to invest in this channel (Brammer & Pavelin, 2008; Buzby & Falk, 1979; Lyon, 2007). Even slack resource theory advocates that firms that have organisational slack tend to put it into social and environmental initiatives (Bowen, 2001).

With specific reference to India, Section 135 of the Companies Act, 2013, makes it mandatory for companies having net profits of ₹50 million or more, to compulsorily spend on CSR activities. Thus, in addition to investors, the Government of India, through the new CSR regulations, has put greater responsibility on highly profitable companies to undertake CSR initiatives. Several measures as Returns on Assets (ROA), Returns on Equity (ROE), Returns on Sales (ROS) and Tobin’s Q have been taken as measures of profitability by authors. This article uses ROA, formulated as, profits after tax (PAT) divided by total assets as a measure of profitability. On the basis of the above discussion, the present study establishes the following hypothesis:

H₃: There is positive association between a company’s profitability and the extent of CSR disclosure.

Age: Firm’s history of involvement in social initiatives also affects its present status of CSR disclosure. Long years of operation have an impact on CSR performance (Akhtaruddin, 2005; Ullah, 2013). Companies with long years of survival, that is, old companies usually have high net worth and high turnover, which help them to generate more profits than newer ones. With the new provisions of CSR, there is larger scope of old companies to get included in the purview of CSR disclosure.). Bayoud et al. (2012) opined that stakeholders in older firms have realised that the involvement in CSR activities also affect the profits of the firm; hence, they are interested in disclosing more information. Previous research also endorses that companies with long years of existence tend to disclose more as compared to the newly formed ones (Bayoud et al., 2012; Delaney & Huselid, 1996; Khan, Muttakin, & Siddiqui, 2013; Muttakin and Subramaniam, 2015; Roberts, 1992). By taking the number of years since inception as the measure of age, the present study tests the following hypothesis:

H₄: There is positive association between a company’s age and the extent of CSR disclosure.

Nationality of a company: Level of CSR disclosure may be affected by whether a company has its operations in more than one country or it operates domestically only. A company having multinational operations is governed by laws, rules and regulations of all the countries in which it operates. Such companies face more international community scrutiny (Branco & Rodriguous, 2008). These are also under scrutiny of various political and pressure groups within the host country that view them as a source of economic exploitation and agents of imperialist power (Ahmed & Nicholls, 1994). They have an incentive to disclose more information, in order to avert any pressure for excessive control for exploitation. Thus, in order to reduce monitoring costs MNC’s make more disclosures (Riahi-Belkaoui, 2001). Also, according to Newson and Deegan (2002), based on legitimacy theory, companies respond to the expectations of relevant members of the public, and for MNCs, this response is not restricted to home country. Companies that are internationally recognised need to fulfil the demands of both national and international investors. Operating in foreign markets requires companies to consider national differences in customer needs, which are influenced by the culture and customs of that country (Branco & Rodriguous, 2008). Thus, in order to satisfy broader spectrum of stakeholders, MNCs make more disclosures (Newson & Deegan, 2002). Also, MNCs are listed in more than one stock exchange and thus require more detailed disclosures as per the listing requirements of a respective stock exchange (Riahi-Belkaoui, 2001). Moreover, MNCs have advanced accounting software tools coupled with efficient management and staff that helps them make more information disclosures without incurring increased processing costs (Mahajan & Chander, 2007).

But with the introduction of new mandatory regime in India, companies operating in India have to mandatorily disclose information on social responsibility, irrespective of their nationality. Thus, the present study tests the following hypothesis:

H₅: There is positive association between nationality and the extent of CSR disclosure.

The bird’s eye view of all the variables tested in the current study is summarised along with their hypotheses and is presented in Table 2 as follows:

Table 2.

Summarised Hypotheses of the Variables Tested in the Current Study

Independent Variables	Symbol	Explanation	Expected Signs
Net Worth	NETWORTH	Companies Act, 2013, under Section 135 has made it mandatory for companies having net worth of ₹5 billion to spend compulsorily in CSR activities	+
Turnover	TURNOVER	Companies Act 2013 under Section 135 has made it mandatory for companies having turnover of ₹10 billion or more, that is, the large-sized companies, to spend forcibly in CSR activities. It indicates that large firms are expected to be more socially committed as compared to smaller ones, even by the law now in India	+
Profitability	TOBINSQ	Section 135 of the Companies Act, 2013, makes it mandatory for companies having net profits of ₹50 million or more, to compulsorily spend 2 per cent of their average net profits of proceeding 3 financial years into CSR activities. Government of India through the new CSR regulations has put greater responsibility on highly profitable companies to undertake CSR initiatives	+
Age	AGE	Companies with long years of existence tend to disclose more as compared to the newly formed ones	+
Nationality	DOMESTIC	Introduction of new regimes and under scrutiny of various political and pressure groups, Indian companies have to mandatorily disclose more information on social responsibility performed by them	+

Source: The authors.

Results and Analysis

Prior to the application of regression analysis, it is important to assess the validity of the regression equations, in order to identify the impact of various corporate-specific attributes on disclosure practices. All the assumptions such as normality tests, autocorrelation tests, heteroscedasticity tests and multicollinearity tests required for application of regression analysis are found to be satisfactory. Various regression models have been applied by taking CSR disclosure score as the dependent variable. Independent variables are tested in regression model both individually and collectively. Six different regressions models have been run. The results are presented in Table 3:

Table 3.

Regression Analysis

	I	II	III	IV	V	VI
Independent Variables	Beta Coefficients (std. error)	Beta Coefficients (std. error)	Beta Coefficients (std. error)	Beta Coefficients (std. error)	Beta Coefficients (std. error)	Beta Coefficients (std. error)
Constant	44.881*(1.874)	29.226*(6.831)	52.171*(2.197)	42.546*(3.270)	44.899*(2.477)	26.679*(7.954)
NETWORTH	0.0005*(0.004)	—	—	—	—	0.0005**(0.004)
TURNOVER	—	2.128*(0.776)	—	—	—	1.564***(0.836)
TOBINSQ	—	—	−1.660*(0.594)	—	—	−1.24***(0.642)
AGE	—	—	—	0.126**(0.066)	—	0.123(0.075)
DOMESTIC	—	—	—	—	5.402(3.290)	6.168***(3.514)
Adjusted R-square	0.061	0.054	0.049	0.019	0.013	0.145
F-value	9.635*	7.517*	7.802*	3.642**	2.397	4.910*

Source: The authors.

Notes: *, ** and *** Significant at 1%, 5% and 10%, respectively. Figures in parentheses indicate standard error.

Table 3 shows the results of six models by taking CSR disclosure as the dependent variable. In model I, NETWORTH is found to be significant at 1 per cent level of significance. It has positive association with CSR disclosure score for selected Indian companies. It implies that companies having higher net worth make more disclosure. In model II, TURNOVER of the firm is found to be significant at 1 per cent level of significance. The results reveal that large-sized companies have more disclosures. Contrary to the hypothesis in model III, profitability, as measured through TOBINSQ, is found to have negative and significant association with disclosure scores implying that more profitable companies exhibit less social disclosure. In model IV, Age is found to have positive and significant association with disclosure scores. Nationality taken as an individual independent variable in model V has no impact on CSR disclosure scores, suggesting that CSR disclosure is independent of the fact whether a company is domestic or multinational.

In order to check the impact of all the variables collectively on CSR disclosure practices, Multiple Regression analysis is applied in model VI. NETWORTH, TURNOVER and TOBINSQ are taken as the independent variables while controlling the impact of age and nationality. The results of full-fledged model VI reveal that NETWORTH, TURNOVER and DOMESTIC have positive and statistically significant impact on CSR disclosure scores. TOBINSQ have negative and statistically significant impact on CSR disclosure scores. The relationship between CSR disclosure and NETWORTH is statistically significant at the 5 per cent level of significance, whereas TOBINSQ, TURNOVER and DOMESTIC are found to be statistically significant at the 10 per cent level of significance. The adjusted R2 for united model is approximately 14.5 per cent, which suggests that only 14.5 per cent of the variation in the CSR disclosure scores can be explained by the independent variables. The F-value of the model is 4.910, which is significant at the 1 per cent level of significance.

The results of multiple regression analysis suggest that companies that are larger in net worth and size make more CSR disclosures. The impact of bringing CSR disclosure under the statutory umbrella is quite evident from the results. Section 135 of the Companies Act, 2013, enforces large-sized companies, having net worth of −₹5 billion or more or turnover of ₹10 billion or more, to invest in CSR activities compulsorily. Hence, the hypotheses (H1) and (H2) stand accepted that net worth and turnover have a positive relation with CSR disclosure. Surprisingly, the regression results indicate a negative relation between profitability and CSR disclosure scores. In the mandatory regime, companies with a minimum profit limit of ₹5 billion need to invest in CSR-related issues. The limit has been set quite low by the Ministry of Companies Affairs, India, so that larger number of companies falls in the ambit of CSR regime. But it seems that the highly profitable companies that were earlier spending even more than 2 per cent of net profits in CSR activities voluntarily, reduced their expenditure to just 2 per cent, that is, the prescribed amount by the law in India, resulting in the negative association between profitability and CSR. Hence, the hypothesis H3 stands rejected that profitability has a positive relation with CSR disclosure. A positive association between age of a company and its CSR disclosure score is found thus accepting hypothesis H4. Old companies have more burden to appear legitimate in the eyes of the masses as they want to maintain their age-old goodwill earned over several years of establishment. The results of multiple regression analysis point out a positive association between company’s residential status being domestic and CSR disclosures. It indicates that companies which are domestic in nature have more CSR disclosures than companies having multinational operations. CSR is deeply rooted in the Indian tradition (Sagar & Singla, 2004). It has rather become more dominant and broader in scope with time (Das Gupta, 2007), especially with CSR becoming mandatory, domestic companies are in fact not left with much choice. Thus, the hypothesis H5 that a company having multinational operations has positive impact on CSR disclosures is being accepted.

Conclusion

The results of both univariate and multiple regression analysis statistically prove that net worth, turnover and profitability have significantly affected CSR disclosure practices of Indian companies. Thus, our results endorse that institutional framework of a country can change the attitude of corporate sector of a country. Prior to the mandatory regime of CSR, only a handful of companies have been undertaking CSR practices voluntarily. But the intervention of the Ministry of Corporate affairs has mandated high-profiled companies to contribute to society. Countries where professionalism does not prevail, statutory controls are needed (Gray, 1988). Statutes have forced the Indian companies to invest in societal requirements, thereby making domestic dummy significant in our results of regression analysis. The choice of being philanthropic has been withdrawn from those companies that can afford charity. But the new law is still in its preliminary stage. The Companies Act requires companies to put at least 2 per cent of their net profits in CSR activities, but it does not strongly impose the penalties in case of non-compliance. The results of the study implicate that even large profitable companies that were earlier spending more than 2 per cent on CSR activities have scaled back their CSR spending. The transition from voluntary to mandatory regime is not much welcomed by the corporate sector (Money Control, 2010). Thus, to ensure its compliance and achieve desired results, execution of the law must be ensured. It is hoped that what is presently taken as a statutory measure would get imbibed in the culture of Indian companies, and the mutual relationship between society and business shall be honoured in the coming years.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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