Corporate Social Responsibility and Financial Performance : The 'Virtuous Circle' Revisited in India

This study empirically analyses the causal relationship between corporate social responsibility disclosure (CSRD) and financial performance (FP) of firms in the emerging economy of India. Content analysis of CSR disclosure is conducted in annual reports of the sampled firms to create a multidimensional measure of CSRD based on stakeholder theory. “Granger causality” method is employed to examine the direction of causality between the aggregate CSRD measures and FP, and the six segregate CSR dimensions and FP. Multiple regression analysis is employed to examine CSRD-FP linkage controlling for the confounding effects of size, risk, age, industry and ownership. The results of this study show that there is statistically significant unidirectional “Granger causality” from FP to aggregate CSRD and two of the six CSRD dimensions of Indian firms. This study contributes to the scarce literature on CSRD-FP linkage in context of emerging economies by using a more inclusive data set, creating a reliable measure of CSR disclosure applicable to a large universe of firms, and including relevant control variables that affect CSRD-FP relationship