Impact of mandatory CSR spending on strategic brand-building levers: evidence from a quasi-natural experiment in India

Abstract

The study aims to examine the impact of Section 135 of the Indian Companies Act, 2013 (firms of certain size and profitability are mandated to spend at least 2% of their profits on corporate social responsibility activities), on two strategic marketing levers, namely, intangible intensity, and advertising intensity. Recent studies document that mandatory corporate social responsibility (CSR) reduces the firm's intrinsic motivation to spent on CSR because it negatively affects their financial and market performance. Firms are no more viewing CSR as a brand-building tool and hence reluctant to spend on CSR. Accordingly, firms are likely to look for alternative ways of brand building, where they can channel their saved CSR funds. The author posits that Section 135 impacts the marketing levers. Based on the triple interaction framework, empirical results exhibit that firms anchor around the 2% CSR spends mandate and channelize their saved CSR funds to intangible assets rather than spending on advertising during the post-legislation period. It shows the unintended consequences of Section 135.