January 2023

Mohammad Anas Wahaj | 31 jan 2023

According to the research by Prof. Praveen Kopalle from the Tuck School of Business (Dartmouth College), Prof. S. Arunachalam of the Rawls College of Business (Texas Tech University), Prof. Hariom Manchiraju of the Indian School of Business (ISB), and Prof. Rahul Suhag of the Kenan-Flagler Business School (University of North Caroline at Chapel Hill), what's good for society and the environment can also be good for a company's bottom line. Firms spending on CSR activities impacts their profitability. Researchers studied data from 2320 unique firms in India between the years 2012 and 2017, completing two forms of empirical analysis - (1) A difference-in-differences design, analyzed companies' CSR spending, advertising, and gross profit margins before and after the passage of the India's CSR law. (2) A regression discontinuity, looked at firms very close to law's threshold (on both sides) and compared the differences in their pricing. According to Prof. Kopalle, 'If both techniques are pointing in the same direction, then we can establish a casual inference that the law is what's making the difference.' After making data more comprehensible, researchers identified three categories of the firms - (1) Newspender: Firms that started spending on CSR after the law was passed. (2) Prosocial: Firms that spent on CSR even before the law was passed. (3) Nonspender: Firms that didn't spend on CSR after the law, and chose to explain to the government why they didn't do so. Mentioning key findings, Prof. Kopalle says, 'The Newspenders start saying more about CSR in their ads and it ends up positively impacting their gross margins...consumers reward socially responsible, profit-maximizing companies and absorb the corresponding price increases without reducing their purchase quantities...At the company level, you can do well by doing good. It's not a zero-sum game...Between using advertising and price as leverage, and having the law as a backup, it gives a cohesive and well-founded story to consumers, so they say it's worthwhile to pay more for products from these companies.' The research also provides proof that governments in emerging economies can use mandatory CSR laws as an innovative strategy to nudge companies to contribute to social causes. Read on...

Tuck School of Business News: Corporate Social Responsibility is not a Zero-Sum Game
Author: Kirk Kardashian

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