The Uses and Abuse of Corporate Social Responsibility – Three empirical studies

This thesis explores the impact of CSR engagement on firm competitiveness from three different angles, viz., credit ratings, short-term stock returns and earnings management. In the first chapter, we examine the causal influence of CSR engagement on the credit ratings (CR) of firms and explore the moderating influence of business group affiliation on the CSR-CR relationship. We find strong evidence of a positive influence of CSR engagement on the credit ratings and business group affiliated firms achieve higher credit ratings compared to their standalone independent counterparts. We also find a reduction in the positive influence of CSR engagement on firm credit ratings during the era of mandatory CSR expenses. In the second chapter, we examine the influence of the exclusive CSR announcements on the short-term stock returns and attempt to explain the reasons behind such behaviour of the investors. We find evidence that investors react positively to the exclusive CSR announcements and the firms from the industries which are severely affected by the recent pandemic benefit more from such announcements. We also find that firms with high financial constraints risk and bankruptcy risk benefit more from CSR announcements compared to the firms which are more financially sound and were less affected by the pandemic. Finally in the third chapter, we study the impact of the mandatory CSR engagement on the earnings management (EM) practices by companies and find that companies increase their earnings management in the post-mandatory CSR period. We also find a larger increase in EM by the business group affiliated firms in comparison to the standalone independent firms after the implementation of the mandatory CSR engagement. We also find evidence that firms resort to CSR engagement as an instrument to practice EM and this is more prevalent for the business group affiliated firms. In order to study the causal effects of CSR on the three aspects of firm competitiveness, we primarily apply OLS and employ relevant robustness tests to verify our results. This thesis extends the stakeholder theory of the firm and establishes that CSR creates a complementary relationship with the risk management and resource-based theories with the former.