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Impact of Corporate Social Responsibility on Firm Value -Evidence From The

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 SSIJBMR VOLUME 4 , ISSUE 5 [SEP 2014] ISSN 2231-4970
SS INTERNATIONAL RESEARCH NETWORK
Available online at www.ssirn.com
SS INTERNATIONAL JOURNAL OF BUSINESS AND
MANAGEMENT RESEARCH
(Internationally Indexed & Listed Referred E-Journal )
Impact of Corporate Social Responsibility on Firm Value - Evidence From
The Indian Stock Market

S. Sudha*
*
Doctoral Research Fellow, Dept. of Econometrics, University of Madras, Tholkappiar Campus,
Chepauk, Chennai, India Zip code– 600 005.
________________________________________________________________
Abstract
The objective of shareholder wealth maximization on the one hand, and societal welfare on
the other, often seem conflicting than complimenting. There has been an on-going debate in
research literature pertaining to the nature of relationship between corporate social
responsibility (CSR) and corporate financial performance (CFP) as the empirical results have
been inconsistent and mixed in various country contexts. Particularly, there is dearth of
empirical research in this area in emerging market economies. Extracting a purposive
sample from the Indian S&P 500 companies, listed on the National Stock Exchange of India
(NSE), who have obtained a CSR rating for the year 2010, this study empirically examines the
value relevance of CSR on the share prices of the companies controlling for major variables
that impact firm value. The cross-sectional multivariate ordinary least squares regression
estimates evidence that CSR has a significant positive relationship on the share price of the
firm implying that companies who have exhibited a superior CSR performance have been
valued higher than those who have an inferior CSR performance.
Keywords: Corporate Social Responsibility, Firm Value, Ordinary Least Squares Regression,
Stock Market, Sustainability Strategy.
___________________________________________________________________________

Introduction business performance assessment has lost

Friedman (1970) argued that the one and
only one social responsibility of business
is “to use its resources and engage in
activities designed to increase its profits so
long as it stays within the rules of the
game, which is to say, engages in open
and free competition without deception or
fraud”. However, his myopic approach of
its relevance today. Stakeholders of
corporate entities are expecting their
companies to be ‘responsible’ corporate
citizens and not mere profit-making
entities. Stakeholders refer to any group or
individual who can affect or is affected by
the achievement of the organisation's
objectives (Freeman, 1984). Employees,

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suppliers, customers, creditors, conflicting, there can always be a win-win

competitors, governments and scenario if companies formulate their CSR
communities are all stakeholders. strategies in such a manner that it would
Strategic resource allocation decisions are result in societal good as well as create
becoming more complex due to the need wealth indirectly (through generation of
for companies to satisfy various goodwill, customer loyalty and employee
stakeholder expectations. Companies are productivity), thereby enhance financial
now being evaluated not merely on performance simultaneously. Therefore,
financial parameters but also on non- integrating CSR strategies in corporate
financial parameters, popularly termed as decision-making process and its
‘Triple Bottom line’ assessment subsequent impact on corporate financial
(Elkington, 1998) encompassing performance (henceforth referred as CFP)
environmental and social parameters in acquires paramount importance for
respect of corporate sustainability, besides research among strategy scholars.
financial parameters. Thus, Corporate However, the results pertaining to the
Social Responsibility (CSR) forms a vital relationship between CSR and CFP are
subset of corporate sustainability strategy. mixed and such research, confined to
The term ‘Corporate social responsibility’ developed economies. Scholars have
(CSR), as defined by the World Business found either positive, or neutral or
Council for Sustainable Development, is, negative impact of CSR on CFP. For
“the continuing commitment by business example, Aupperle et al. (1985) have
to behave ethically and contribute to reported an inverse relationship between
economic development while improving the economic components and the ethical
the quality of life of the workforce and components of firm performance.
their families as well as of the local McWilliams and Siegel (2000) and Brine
community and society at large”. et al. (2007) found neutral impact of CSR
Shareholders of companies, one of the on CFP.
major stakeholders, are keen on their In the Indian context, research on CSR is
wealth-maximization, while on the other predominantly case study based and
hand, the society is keen on ‘socially empirical studies on CSR-CFP
responsible’ activities of the corporation. relationship are very limited. In India, a
Though, at the outset, the two objectives – Mumbai-based NGO called ‘Karmayog’
wealth maximization on the one hand and provides a free on-line platform for all
societal welfare on the other, seem to be stakeholders interested in social issues,

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viz, NGOs, citizens, Government, method used for the analysis. Section 5
corporate etc. Their on-line website presents the empirical results and the final
www.karmayog.org publishes CSR ratings section concludes.
of top 500 Indian companies based on 2. Theoretical Background And
various non-financial parameters (see Hypothesis
Appendix I) and Indian researchers have McGuire et al. (1988) extensively
been using the same (Bedi, 2009 ; Tewari, provided different scholarly views
2010) to capture CSR performance. pertaining to the theoretical framework
However, there is dearth of studies in the regarding the relationship between CSR
Indian context that have used empirical and CFP. Scholars who have suggested an
model to test the relationship between inverse relationship between CSR and
CSR( using CSR ratings) and stock market CFP (Aupperle et al., 1985) have based
based CFP measure and specifically, their arguments on the additional costs
examine whether the stock market values being incurred by firms on environmental
higher, those firms with a ‘high’ CSR compliance, charity contributions,
rating than those with a ‘low’ CSR rating. community development etc., thereby,
Hence, this research paper identifies establishing CSR activities as
differences in firm characteristics between uneconomical. Other scholars
companies with ‘High’ CSR performance (Moskowitz, 1972; Spicer, 1978) who
with that of companies that have shown a have evidenced positive relationship
‘Low’ CSR performance and attempts to between CSR and CFP theorise that a
analyse the direction and magnitude of the company enjoys multiple benefits (due to
impact of CSR performance on the firm goodwill generated by CSR) like customer
value of selected S&P 500 Indian listed loyalty, employee retention, improved
firms quoted on the National Stock relationships with the bankers,
Exchange of India (NSE) that have government, institutional investors and
obtained a CSR rating. therefore, a higher market value. Nurn
The remainder of the paper is organised as and Tan (2010) have identified the
follows. Section 2 describes the intangible benefits of CSR on firms, viz,
theoretical background and states the attracting better employees, enhancement
hypothesis. Section 3 reviews empirical of employee commitment and productivity
studies on CSR-CFP linkage. Section 4 that consequently result in reduction of
explains the methodology comprising of operating costs leading to improved
data, empirical model, variables and financial performance. Ultimately, it is

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the modern stakeholder theory that gives firm’s resources but also the other
this inter-disciplinary research an stakeholders like customers, government
appropriate theoretical framework. and society with whom the firm has made
2.1 Stakeholder Theory implicit contracts. For example, customers
The stakeholder theory established by expect good quality product/service from
Freeman (1984) requires a company to not the firm; government expects proper
only satisfy the shareholders’ (the owners) adherence of environmental regulations by
interest but also the interest of other firms and firm’s sensitivity to social
stakeholder groups. The stakeholder responsibility. Socially irresponsible
approach is further analysed by Clarkson actions of firms may spill over to other
(1995) who categorizes stakeholders into implicit stakeholders and give rise to
primary stakeholders and secondary distrust in their perception towards the
stakeholders. Primary stakeholders firm’s capacity to honour their claims
comprise of shareholders and investors, (McGuire et al., 1988). Thus, the theory
employees, customers and suppliers, contends that firms with a perception of
governments and communities. Further, it high CSR may have low-cost implicit
is emphasized that managers should not claims compared to the other firms, and
attempt to maximise returns to therefore, have higher financial
shareholders at the expense of other performance. Hence, it is posited that
primary stakeholder groups. Doing so, CSR rating exerts a significant positive
will eventually lead to withdrawal of that influence on the firm value. In this study,
stakeholder group from the system and the share price is used as a proxy to capture
very survival of the firm will be in firm value. Hence, the following
jeopardy. As a consequence, a holistic hypothesis is formulated:
corporate sustainability performance has H1: Corporate social responsibility exerts a
given rise to corporate social responsibility significant positive impact on the share
(CSR) obtaining a prominent position in price of the firm.
the corporate strategy formulation. The 3. Review Of Empirical Studies
modern stakeholder theory (Cornell and Past empirical studies analysing CSR-CFP
Shapiro, 1987) states that the value of a linkage have used varied measures for
firm depends on the cost of explicit as well capturing CSR as well as CFP.
as implicit claims. This means that, it is Accordingly, the method of estimation
not merely the shareholders, bondholders also varies. Studies using either
and employees who are claimants of the accounting-based CFP measures, viz.,

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Return on Assets/Return on Equity/Return emphasis on ethical, legal and

on Sales (ROA/ROE/ROS) or market-
based CFP measures (such as Tobin’s q or
share price) as the dependent variable and
CSR as the independent variable have
invariably used multivariate Ordinary
Least Squares (OLS) regression method.
It is believed that CSR is one of the major
tools to build corporate reputation and
therefore, Ullmann (1985), McGuire et al.
(1988), Fombrun and Shanley (1990),
Brine et al. (2007), Stanwick and Stanwick
(1998) have all used the corporate
reputation index as a measure of CSR.
Few other scholars (McWilliams and
Siegel, 2000; Becchetti and Ciciretti,
2006) have used the Domini Social Index
400 (DSI 400) developed by Kinder,
Lydenberg and Domini (KLD), Inc.
Cochran and Wood (1984), analysed a
sample of 61 firms from S&P 500 during
two time periods (1970-74 and 1975-79)
using both OLS regression and logit
regression and have documented that there
is a positive linkage of CSR with financial
performance, even after controlling for
firm’s asset age and industry groups.
Aupperle et al. (1985), through a primary
survey of 241 companies listed in Forbes
1981 Annual Directory, performed a
factor analysis of the four components of
the CSR construct propagated by Carroll
(1979). The study reported that more
economically oriented firms place less
discretionary issues and added to that,
there is a negative relationship between
the economic and ethical parameters.
McGuire et al. (1988) comprehensively
analysed the CSR-CFP relationship using
accounting-based measures, stock market
based measures and risk-based measures
and reported that firms low in CSR
experience lower ROA and stock market
returns than do firms that are high in CSR.
Subsequently, Waddock and Graves
(1997) demonstrated that CSR is
positively associated with both prior
financial performance as well as future
financial performance. Stanwick and
Stanwick (1998), assuming environmental
performance as one of the critical
components of CSR, used pollution
emissions to capture the same, and find
that firms that are larger in size have
higher levels of profitability, lower levels
of pollution emissions and higher levels of
CSR. McWilliams and Siegel (2000)
criticised the previous studies on the
ground that, R&D, being a very important
control variable in the determination of
firm performance had been ignored in the
empirical models. Hence, linking KLD
data and Compustat, the authors analysed
a sample of 524 firms with long-run
financial performance being regressed on
CSR, firm size, risk, R&D intensity,
industry groups and industry advertising

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intensity. The authors concluded that In the Indian context, Bedi (2009) has
CSR has a neutral effect on the firm explored the relationship between CSR
financial performance. Rigorously (captured as corporate social expenditure)
analysing through a meta-analysis of and financial performance using cross-
33,878 observations, Orlitzky et al. (2003) sectional OLS regression. Using data of
documented that there is a positive 37 companies belonging to the top 1000
association between CSR and CFP across companies of India during the financial
industries and across study contexts. In year 2007-08, the study has found that
the Australian context, Brine et al. (2007) there is a positive relationship between
analysed 277 firms listed in the Australian CSR and financial performance. Tewari
stock exchange during 2005 using cross- (2010), using the Karmayog CSR ratings
sectional OLS regression, with ROA, ROE and information disclosed in the annual
and ROS as dependent variables regressed reports of companies, has made a
on CSR (captured as a dummy variable) comparative analysis of top five
and did not obtain statistically significant companies of five industry sectors (viz.,
relationship between CSR and CFP. Steel, Cement, Oil, Banking and IT
Assuming environmental performance as sectors) in respect of their CSR
one of the critical components of CSR, involvement. Singh and Pachar (2012)
Sinkin et al. (2008) analysed the impact of have conducted an exploratory study
eco-efficiency (captured as eco-efficiency gathering primary data on stakeholders’
rating) on the firm value in the US context perception about CSR policy and its
using the Ohlson (1995) model. The impact on financial issues in the
sample firms were categorised as ‘eco- organization and find that CSR is
efficient’ and ‘not eco-efficient’, based on positively related to financial performance.
certain qualitative criteria. Share price In a doctoral dissertation, Tyagi (2012) has
was used as the dependent variable and the examined critical factors of CSR and its
independent variables being book value of impact on CFP and competitiveness using
equity, earnings per share and an indicator a sample of Indian firms and documented
variable for eco-efficiency. The study that the three major drivers of CSR in
reports that eco-efficient firms have India are financial health, competency and
consistently higher market values than the stakeholder satisfaction.
sample of ‘non eco-efficient firms’. 4. Methodology
4.1 Data and Initial Analysis

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The study is based on secondary
data sources. All the financial data are
sourced from the PROWESS database
maintained by the Centre for Monitoring
Indian Economy (CMIE) pertaining to 1st
December 2010. Share price of companies
are the closing share price data at the
National Stock Exchange of India (NSE).
The study has used the Karmayog CSR
ratings from the website
www.karmayog.org pertaining to the year
2010 as the measure of CSR (Appendix-I
explains about Karmayog and Karmayog
CSR rating parameters). Karmayog CSR
rating takes the scale from 0 to 5 (‘0’
rating for firms with lowest score in CSR
and ‘5’ rating for firms with the highest
CSR score. The sampling method
employed is purposive sampling since
only those companies that are assigned a
CSR rating comprise the sample. Hence,
from the sample comprising all the 500
S&P 500 companies in India, a sub-sample
has been extracted based on whether the
company has obtained a CSR rating of
either ‘0’ or ‘3’ or ‘4’ for the year 2010, in
order to group the firms into two
categories-(1) ‘High-CSR’ firms and (2)
‘Low-CSR’ firms. A noteworthy point is
that during 2010 none of the Indian
companies had obtained the highest rating
of ‘5’ (refer to Appendix-II). The
purposive sample yielded 119 CSR-rated
firms. Among these, 73 firms had a rating
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of ‘3’ or ‘4’ and hence, categorized as
‘High-CSR’ rated firms. The remaining
46 firms with a rating of ‘0’ were
categorised as ‘Low-CSR’ rated firms.
Among these, 4 firms (ITC Ltd., Godfrey
Philips India Ltd., United Breweries Ltd.,
United Spirits Ltd.), belonging to
Cigarettes and tobacco product industry
and beer/alcohol industry are removed
since Karmayog gives a rating of ‘0’ to
firms that belong to these industries
irrespective of their CSR performance
(refer point No.3 of Appendix-I). The
reduced sample yielded 115 observations
out of which 73 companies belong to
‘High-CSR’ category and 42 companies
belong to ‘Low-CSR’ category.
Stata 10.0 statistical software package has
been used to conduct all the data analysis.
In order to identify differences in firm
characteristics between the two categories,
the t-test for difference of means in respect
of key variables was conducted using the
115 companies sample, the results of
which are presented in Table 1. From the
results, it is evident that companies that
are performing very well in respect of
CSR are firms that are significantly larger
in size (measured in terms of total assets)
compared to those that are low in CSR
performance. The earnings per share
(EPS), profit after tax (PAT) as well as
share prices of High-CSR companies are
significantly higher than that of their
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counterparts. It is also found that published by the companies. Hence, it is

companies that show low CSR assumed that social disclosures would be
performance are significantly highly reflected in share price, if they have
leveraged than those with a High-CSR informational value (Ullmann, 1985). In
performance. This initial analysis the words of Cochran and Wood (1984),
evidences that companies that are “EMH posits that as information that
performing well in CSR parameters are might affect future cash flows of a firm
financially stronger than those that are low becomes available, it immediately will be
in CSR performance. However, it is reflected in its current share price. The
imperative to run a multivariate regression implication of this is that even if CSR does
model to quantify the impact of CSR on lead to improved financial performance, as
share price as well as statistically prove soon as the market becomes aware of any
the direction and magnitude of the impact change in a firm’s CSR rating it will
controlling for major variables that are immediately alter the price per share to
expected to affect share prices. reflect that information.”
4.2 Empirical Model According to Ohlson (1995), the
Since the impact of CSR on share prices is predictors of equity value are earnings,
the main focus of this study, the empirical book value of equity and a vector of other
model demands using a financial model value-relevant information that may affect
that factors in all relevant information the future cash flows of the company.
(including non-financial parameters like Since the objective of this study is to test
CSR) in the equity valuation. Studies that the impact of CSR on CFP, the
have explored ‘value relevance’ of non- Ohlson(1995) model has been considered
financial information on the stock price most appropriate (following Sinkin et al.
(levels form) have used the Ohlson (1995) ,2008) since the impact of CSR
model (see Rajgopal et al., 2003; Sinkin et information on share price can be directly
al., 2008; Lourenco et al., 2012; Ghosh, analysed. The following equation depicts
2013) as the model is based on the the Ohlson (1995) model:
Efficient Market Hypothesis (EMH).
According to EMH, the capital market
readily impounds all available
information- those published in annual
reports and also unaudited figures of
earning published in the interim reports

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SPit = α+ a1EPSit + a2BVit + β1Vit + ηit
Where,
SPit is the Share Price, i.e, firm value
EPSit is the earnings per share
BVit is the book value
Vit is the vector of other value-relevant
information.
The focal variable of the study, being,
CSR is included in the vector of other
value-relevant information, as it
assumed that investors factor into the
share price of a firm, other critical non-
financial factors which indirectly affect
future cash flows, such as, CSR. In the
present study, the book value component
has been substituted by price-to-book
ratio, since book-to-price ratio could be
decomposed into an enterprise book-to-
price that reflects operating risk and
leverage component reflecting financing
risk (Penman, 2006), price-to-book ratio
forms a more comprehensive measure than
book value. Consequently, a separate
control variable capturing leverage is not
used in the model since it is already
captured in the price-to-book ratio. Fama
and French (1992) have also demonstrated
that the price-to-book ratio explains the
differences in stock returns better than
beta does, and authenticate the use of size
and price-to-book ratios as proxies for
other fundamentals. Agrawal (1996) has
SSIJBMR All rights reserved.
asserted that the change in the value of a
firm may be considered as a change in the
ratio between the market price of its shares
and their book value. In order to avoid
specification error, R&D intensity and
Firm Size are used as control variables in
this study, following McWilliams and
Siegel (2000) who emphasized that R&D
captures product innovation as well as
process innovation which includes CSR
attributes. Hence, the following modified
is
version of the Ohlson (1995) valuation
model is adopted to test H1:
SPi = β0+ β1EPSi + β2PBRATIOi +
β3 FSIZEi + β4R&DIi + β5CSRRi + εi -
---- (1)
Where,
The dependent variable SPi is the share
price of firm i .
EPSi is the earnings per share of firm i
PBRATIOi is the Price-to-book ratio of
firm i
FSIZEi is the firm size measured as the
natural log of total assets of firm i
R&DIi is the R&D intensity of firm i
measured as the ratio of R&D expenditure
to sales
CSRRi is a dummy variable that takes the
value of ‘1’ for High-CSR rated firms and
‘0’ for Low-CSR rated firms
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εi is the idiosyncratic error term EPS. It is also positively correlated with

price-to-book ratio as well as firm size.
βs are the parameter estimates that relate
The correlation coefficients amongst
the explanatory variables to the share
explanatory variables are not significant,
price.
implying that there isn’t any
4.3 Sample and Method
multicollinearity issue in the model.
The dependent variable in this study is the 5. Results
firm value (market value), captured by the
The results of the estimated equation (1)
share price of the firm. The two major
through OLS regression are reported in
explanatory variables are the earnings,
Table 4. In Model 1, share price is
measured as earnings per share (EPS) and
regressed on the two fundamental
price-to-book ratio (PB). CSR is captured
explanatory variables -earnings per share
as a dummy variable taking the value of
and price-to-book ratio. In model 2 and 3
‘1’ for ‘High-CSR’ firms and ‘0’ for
the control variables firm size and R&D
‘Low-CSR’ firms. The two important
intensity are added one by one
control variables, viz, R&D intensity and
respectively. Finally, in model 4 the main
firm size are measured as and log of total
explanatory variable focussed in this study
assets respectively. Due to missing data
- CSRR is added and it is found that the
on R&D for many firms, many
impact of CSRR (our main variable in
observations had to be eliminated to run
focus) on the firm value (share price), is
this model and the initial sample of 115
positive and statistically significant at 5%
companies reduced to 52 companies out of
level of significance with a coefficient of
which 42 were High-CSR companies and
INR358.935, even after controlling for
10 were Low-CSR companies. Since the
important variables, price-to-book ratio,
data pertains to a single period, i.e., the
R&D intensity and firm size. The
year 2010, cross-sectional Ordinary Least
Adjusted- R2 improved from 86% to 87%
Squares (OLS) regression has been used in
after the inclusion of the CSR dummy.
this study.
Since CSRR is a dummy variable, with
The descriptive statistics of the data are
‘Low-CSR’ firms forming the reference
reported in Table 2 and the correlation
category, we interpret that the average
coefficients of the variables considered for
share price of ‘High-CSR’ firms is higher
the study are reported in Table 3. From
by INR358.935 relative to the average
Table 3, it is evident that share price is
share price of the ‘low-CSR’ firms.
significantly positively correlated with

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Observing the impact of other explanatory
variables, it is evident that the impact of
earnings per share and price-to-book ratio
on the market value are positive and
statistically significant at 1% level of
significance. For one INR increase in the
earnings, the share price would increase by
INR 21.432. For one unit increase in
price-to-book ratio, the share price would
increase by 45.358 units. The coefficient
of R&D intensity, though positive, is
statistically insignificant. The sign of the
coefficient of firm size is negative, which
is unexpected. It is concluded that the
positive, statistically significant impact of
CSR on CFP supports the hypothesis H1.
Hence, this study documents that CSR has
a significant positive effect on CFP,
conforming to the results of Ghosh (2013).
6. Conclusion And Implications
Exploring the relationship between
corporate social responsibility and
corporate financial performance, the study
hypothesised that CSR will exert a
significant positive impact on the firm
value. Empirical results of this study have
demonstrated that, companies exhibiting
high level of CSR are valued higher in the
Indian stock market than those that are
exhibiting low level of CSR. Therefore, it
does pay to be a good corporate citizen in
an emerging market economy- India.
Since the study has used market-based
measure of financial performance, it could
SSIJBMR All rights reserved.
be inferred that the Indian stock market is
efficient enough to readily absorb the
information on non-financial performance
parameters such as, CSR and factor the
same into the share price of the firm.
Further research could look into bi-
directional causality between CSR-CFP
relationship as it is evidenced from this
study that financially stronger and larger
companies have obtained high CSR rating
as compared to the reference category.
Issues such as CSR-CFP relationships are
better analysed through panel data
analysis. However, unavailability of
longitudinal data being the major
limitation of this study, the study has
restricted to cross-sectional analysis of
data pertaining to the year 2010 only. The
limitations with respect to small sample
and Karmayog CSR rating also applies to
this study (for e.g, companies
manufacturing tobacco-based products get
a ‘zero’ rating irrespective of a slew of
CSR activities undertaken by them).
The findings of this study have major
corporate and policy implications with
respect to CSR reporting and disclosure.
There is a need to standardise social
disclosures and make sustainability audit
and reporting statutory. This will facilitate
the capital markets to further discipline the
corporate sector and nurture socially
responsible investing (SRI). As Indian
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capital markets are exhibiting reasonable
sensitivity to CSR parameters, CSR,
should form an integral part in the
formulation of corporate strategy and in
commercial decision-making.
Nevertheless, the role of the Ministry of
Corporate Affairs in making CSR
investments mandatory through
amendments in the Companies Act, 2013
is commendable. Accordingly, every
company having net worth of rupees five
hundred crore or more, or turnover of
rupees one thousand crore or more or a net
profit of rupees five crore or more during
any financial year shall constitute a
corporate social responsibility committee
of the board consisting of three or more
directors, out of which at least one director
shall be an independent director. Indian
companies are required to spend at least
2% of the average net profits of the
immediately preceding three years on CSR
activities and report the same to the
ministry. This is a good move in the
direction of CSR standardisation and
disclosure and a win-win situation for,
corporate entities can undoubtedly reap
rich rewards through high level of CSR,
simultaneously contributing for a better
society and greener earth for future
generations.

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Table 1: t-test statistics for difference of means between High-CSR rated and
low-CSR rated categories of companies

Variables (units) Low-CSR High-CSR t-values

rated (42 rated (73
companies) companies)

Share Price (INR) 220.8 764.7 -3.47

Total Assets (in 65879 551974 -1.99

million INR)

EPS (INR) 16.63 39.76 -2.99

PAT (in million 2006 14324 -3.85

INR)

Leverage* (ratio) 0.33 0.21 3.27

* computed as Total Debt scaled by Total Assets

Table 2: Descriptive Statistics

Variables Obs Mean Std. Dev. Min Max

EPS 52 35.261 46.228 -23.61 271.85
SP 52 810.719 1123.93 30.5 6300.35
PBRATIO 52 4.276 3.938 0.55 20.47
CSRR 52 0.807 0.398 0 1
FSIZE 52 11.152 1.145 8.807 13.718
R&DI 52 0.011 0.019 1.02E-05 0.108

Table 3: Correlation table of key variables

Variable CSRR SP EPS PBRATIO R&DI FSIZE

CSRR 1
SP 0.2016 1
EPS 0.0926 0.8968 1
PBRATIO 0.0094 0.3028 0.1358 1
R&DI -0.1104 0.0599 0.0189 0.008 1
FSIZE 0.309 0.2004 0.1904 -0.0493 0.1339 1

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Table 4: Multivariate OLS Regression Estimates of Equation (1)

Dependent variable: Share Price
(‘t’values in parantheses)

Models
Variables 1 2 3 4
*** *** *** ***
EPS 21.521 21.594 21.606 21.432
(16.7) (15.7) (15.61) (16.09)
PBRATIO 48.545*** 48.082*** 47.857*** 45.358***
(3.21) (3.09) (3.06) (3.01)
FSIZE -9.049 -13.797 -66.058
(-0.16) (-0.25) (-1.13)
R&DI 2016.667 3594.114
0.67 1.21
CSRR 358.935**
(2.21)
*
Intercept -155.722 -55.41 -23.458 269.425
(-1.68) (-0.09) (-0.04) 0.44
2
Adj R 86.10% 85.90% 85.70% 86.80%
N 52 52 52 52
Note: *** Significant at 1% level, ** Significant at 5% level

Appendix I Conservation, Vocational Training,

About Karmayog Employee welfare, Physically challenged,
Karmayog.org is a free on-line website Water, Energy, Poverty eradication and
that provides a common platform for the Women
Indian non- profit sector for addressing
Parameters of Karmayog CSR rating
civic issues and collaborate with various
stakeholders, providing NGO-Citizen- 1. Products and Services : The
Government interface. It is an initiative of subjective rating (0-5) is based on the
the Shri R.O. Somani charitable Trust company’s main products/services.
having 80G registration. 2. Need of society : If the
CSR activities identified by Karmayog fall product/service offered is not needed by
under the following 18 categories: society, then the Karmayog CSR rating is
zero.
Children, Environment, Rural
3. Zero rated products : companies which
development, Community welfare, Girl
produce the following are given a zero
child, Senior citizens, Disaster relief,
karmayog CSR rating:
Healthcare, Sports, Education, Heritage

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 Cigarettes and tobacco based products  Automobiles, auto parts, tyres

 Liquor companies manufacture
4. Must-do CSR: Every company degrades  Paper, forestry based products
the environment and hence must be manufacture
working to reduce their ecological  Iron and steel manufacture
footprint, and rejuvenate the source /place 8. Minimum CSR spend: A company must
from where it uses resources or operates. spend an amount equivalent to at least
To get a CSR rating of even 1, a company 0.2% of its sales for CSR activities. Such
must be engaged in environmental work an amount provides an idea of the
that rejuvenates the damage done. magnitude of CSR that can be done by a
5. Least harmful process: The process company. If a company does not spend
followed in the making of that product or this minimum amount, then a zero or low
delivery of that service is considered while Karmayog CSR rating would be given.
assigning the rating of a company. The 9. Employee participation and volunteerism:
process followed should be one that does This factor has not been a deciding factor
the least harm. in the Karmayog CSR rating.
6. Impacts of usage: The implications of the 10. Reach of CSR activities: A second rating
usage of the product/services are has also been carried out simultaneously to
considered while assigning the rating of a determine the extent of impact that a
company (pollution intensity, company’s CSR activities has.
environmental degradation, waste Accordingly, a company would be
generation, etc.) assigned either “a”, “b” or “c” where a =
7. Harmful products: Companies which CSR activities involving employees only,
engage in the following processes b = CSR activities in the physical vicinity
extensively damage the environment. of the company’s operations and c = CSR
Hence a Karmayog CSR rating of not activities involving the larger community
more than 2 can be given to them, even if and society as a whole.
they are doing extensive work under CSR. 11. Social banking and social responsibility:
 Mining Banking, insurance and finance sectors
 Aviation tend to get rated higher because of the
 Thermal power generation nature of their work. However, engaging
 Cement manufacture in microfinance and rural banking does not
automatically mean good CSR practice, as

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often what is termed as “social banking” is base and business, and is also part of the
just a simple extension of the customer priority sector lending that is mandatory.

Appendix II
Karmayog CSR rating (Highest with rating of ‘5’ to lowest with rating of ‘0’) of top 500
companies in the year 2010 (according to Dun and Bradstreet): Source:
www.karmayog.org/csr2010/index.htm accessed on 04/11/2012

No. of
Karmayog CSR Rating 2010 Companies %
Level 5 (highest) 0 0
Level 4 12 2
Level 3 66 13
Level 2 161 32
Level 1 148 30
Level 0 (lowest) 113 23
Total 500 100

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