The Impact of Corporate Social Responsibility on Financial Performance (Evidence from Publicly Listed Indian Companies)
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The study investigates the relationship between corporate social responsibility (CSR), and the
performance of the publicly listed non-financial firms operating in India. CSR's importance as a
strategic component in the corporate world has increased due to increasing demands from
various stake holders, instead of just being focused solely on shareholder value. Within the
Indian context CSR has been influenced by both voluntary actions by corporations and
regulatory requirements; therefore, the environment provides a unique institutional
background to determine if there are relationships between sustainable activities and firm
performance in an emerging market economy.
This study examines whether ESG performance is associated with firm financial performance.
ESG performance is represented by the Environmental, Social, and Governance (ESG) composite
score, and represents the quantifiable aspect of socially responsible business operations. The
theoretical basis for this study is primarily based on Stakeholder theory. Stakeholder theory
posits that companies can achieve higher levels of long-term performance through effective
management of their stakeholder relationships. However, CSR may also require additional
resources and expenditures for compliance purposes; these expenses or investments may not
result in immediate benefits to the company financially. The empirical analysis uses a balanced
panel of 98 publicly listed non-financial Indian firms from the Nifty 500 Index covering the period
2018 to 2024. In the main specification, ESG performance in year (đĄ â 1) is matched with
financial performance in year đĄ. Financial performance is measured using Return on Assets (ROA)
to capture accounting profitability and the Market-to-Book Ratio (MBR) to capture market
valuation. The study estimates fixed-effects panel regression models with firm and year effects,
along with firm-level control variables. To check the robustness of the findings, the analysis also
uses a two-year lag of ESG, separate ESG pillar scores, and a subsample of large firms.
The results do not show statistically significant evidence of a relationship between ESG
performance and either accounting-based or market-based financial performance over the
sample period. Across the robustness tests, the main conclusions remain broadly unchanged.
The research shows that although ESG performance does not contribute significantly to short-
to medium-term financial performance, the findings appear to also reflect the same trend
regardless of the framework used in this research. The findings of this study in terms of the
Indian regulatory climate surrounding CSR indicate that ESG measures represent not only
substantive strategic actions but also compliance and disclosure. Overall, this study will further
contribute to CSR and financial performance through additional information about CSRâfinancial
performance in the context of regulated emerging markets.