Exploring the Bi-directional relationship between corporate social responsibility and financial performance in Indian context

Abstract

Purpose

This study aims to investigate the relationship between corporate social responsibility (CSR) and financial performance from the bi-directional perspective.

Design/methodology/approach

The final sample for this study are 79 companies listed in the national stock exchange for a period of eight-years (2008–2015). Random effect panel regression was performed to examine the possible link.

Findings

The result shows that CSR has a positive impact on the contemporaneous and future financial performance of the selected companies. Further, the study shows that only social dimension has a positive and significant impact on concurrent and future financial performance. The results further validate slack resource theory as lagged financial performance has a positive and significant impact on CSR.

Practical implications

The strategic value of CSR indicates that it should be seen as a value-enhancing strategy, and therefore, incorporated with the broader corporate strategy of the company. Companies should not trade-off between CSR and financial performance, rather a strategic synchronization of CSR with corporate functioning is essential. This will pave a way to build a stakeholder-sense in the corporate entities.

Originality/value

The study comprehensively examines the relationship between CSR and financial performance from both “prospective” and “retrospective” framework. This bi-directional approach has received minimal attention in the Indian context.