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Scholarly Research Journal for Interdisciplinary Studies, Online ISSN 2278-8808, SJIF 2016 = 6.17, www.srjis.com UGC Approved Sr. No.49366, NOV-DEC 2017, VOL- 4/37 https://doi.org/10.21922/srjis.v4i37.10587

A COMPARATIVE ANALYSIS OF MANDATORY CSR SPENDING BY INDIAN COMPANIES Monica Aggarwal, Ph. D. Assistant Professor, Aryabhatta college, University of Delhi

With the revamping of Companies Act, 2013, India has witnessed a new dimension of CSR for the companies. Now CSR has been made mandatory for Indian companies of a particular financial strength. With this backdrop of mandatory CSR, an attempt has been made in the current paper to examine whether there is statistical difference in the actual CSR spending of companies across industries. For this purpose, a sample of 50 companies divided into five industries is taken. CSR spending for accounting year 2014-15 has been taken. One-way ANOVA has been used to make the analysis which is carried out on SPSS version 20. On the basis of results, the study concludes that industries differ significantly with respect to CSR spending by companies in those industries. Keywords: CSR spending, ANOVA, mandatory CSR, Mean plot, Industries. Scholarly Research Journal's is licensed Based on a work at www.srjis.com

Introduction

India has one of the world‟s richest traditions of corporate social responsibility (CSR). The concept of CSR is not new to India. CSR originated as a voluntary attempt by companies to serve the society in early 20th century. Over last seven decades, CSR has grown from a narrow and marginalised notion into a complex multi-faceted concept, one which is increasingly central to today‟s corporate decision making (Cochran, 2007). There has been a continuous discussion over the nature and extent of CSR and it has evolved from just an individualistic philanthropic initiative to a holistic corporate strategic decision. Amidst this transformation, which is still continuing, a lot of literary work has been done in terms of giving new definitions to the term CSR, coining of various theories and development of models. A detailed attempt has been made by both business and academic communities to give sharpness to the meaning of CSR and therefore as a consequence there is a myriad of definitions for CSR without any unanimous one single definition till date.Since then it has evolved in terms of conceptualization but remained a voluntary initiative by the companies. Despite of the fact that CSR has been a voluntary initiative, Indian companies have always depicted a strong inclination to undertake Copyright © 2017, Scholarly Research Journal for Interdisciplinary Studies

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various activities under an umbrella of CSR for the benefit of various stakeholders beyond just shareholders. Till date, across the globe with an exception of India, CSR continues to be a voluntary initiative by the companies. To encourage more and more companies to participate in the process of development of the society via- CSR, India took a stern step towards making CSR mandatory by virtue of Companies Act, 2013. The inclusion of the CSR mandate in the Companies Act, 2013 has been an attempt to supplement the government‟s efforts of equitably delivering the benefits of growth and to engage the Corporate World with the country‟s development agenda. By making CSR mandatory, India aims at increasing the number of companies undertaking CSR and thereby increasing the overall CSR spent. The act among other provisions lays down the provisions related to CSR i.e. Section 135, which says every company having a turnover of Rs. 1000 crore or more, or a net worth of Rs. 500 crore or more, or a profit of Rs. 5 crore or more during any financial year shallspend in every financial year, at least two per cent of the average net profits (net profits are defined in Section 198) of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. Thus, making CSR a legislative requirement, will definitely bring more companies under the umbrella and very purpose of serving the society will be done at a larger volume. This legislative requirement of compulsory CSR spent requires to be studied sector wise in order to see the uniformity in the nature and extent of CSR initiatives. Thus, in order to examine whether actual CSR spent by companies in different industries differ significantly, the current paper attempts to do a comparative analysis of actual CSR spent in the Accounting Year 2014-15 of select Indian companies. The remainder of the paper is organised as follows. Section II gives a brief review of literature related to the topic. Section III states the objectives of the study. Section IV details out the research methodology adopted. Section V presents the analysis and results. Section VI gives contribution of the study and Section VII concludes the paper. II.

Review of literature

CSR has gained much attention over the last few decades as a researchable area The academic research relating to the diverse aspects such as time, strength, direction, nature, causality as well as identification of the underlying factors affecting the various dimensions of CSR is very extensive and controversial one. For more than 50 years, various academic fraternities from the Copyright © 2017, Scholarly Research Journal for Interdisciplinary Studies

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fields of economics, management, finance etc. have worked upon the subject from different perspectives. Csr has been made mandatory in India in 2013 and thus, there are few studies only which throws light on the analysis of CSR spent. Whether CSR should be made mandatory or not depends on the question that whether companies need any laws and regulations to report/disclose its CSR activities or whether the decision to act and report is to be left to the individual judgment of the corporation. The issue of mandatory CSR reporting has gained prominence in recent years following the global financial and economic crisis in the 2000s, a string of corporate misconduct and failures, and growing threats from business operations to environmental sustainability from business operations, all of which have created a „trust deficit‟ between corporates and their stakeholders (KPMG-UNEP, 2010). GahlotSushmita (2013) studied “Corporate Social Responsibility: Current Scenario” and concluded that the Clause 135 introduced by the Companies Act 2013 would go a long way in strengthening the social initiatives taken by the companies.However, certain clarifications are needed to handle the issues of penalties in the event of non-disclosure, scope of Schedule VII, internal controls, tax implications etc. Under voluntary reporting, if all firms engaging in CSR report in equilibrium, making CSR reporting mandatory will add to regulatory burden without adding any additional information (Lin, 2010). Further, mandatory CSR reporting could have a perverse effect on corporate accountability if it leads to useless and biased information (Hess and Dunfee, 2007). Thus, with just one year passed by with mandatory CSR in India, there is a long way to go to see the actual repercussions of this legislative requirement. III.

Objectives of the study

The present study has been conducted with the following objectives To identify the actual CSR spending by the companies in 5 industries in the AY 2014-15 after CSR has been made mandatory. To find whether there is any statistical difference between actual CSR spending of companies across five industries. IV.

Research Methodology

This study makes an attempt to identify whether there is any statistical significant difference in the actual CSR spending of companies across five industries for which necessary research design has been developed : Copyright © 2017, Scholarly Research Journal for Interdisciplinary Studies

Dr. Monica Aggarwal (Pg. 8506-8515) 8509

Sample size and sampling period The study uses secondary sources for data collection. Data for actual CSR spending by the companies has been obtained for a sample of 50 companies divided into 5 industries i.e. auto and its ancillaries, banking and finance, information and communication, pharmaceuticals and oil drilling and refineries. This is collected from the CSR outlook report, 2014 generated by NGO box. CSR spending of the companies has been taken for the accounting year 2014-15. Model The current study makes a comparative analysis on CSR spending of Indian companies across five industries. Thus, as there are five independent samples of industries, therefore for this purpose, one-way ANOVA has been used to make an analysis. For the purpose of inferring on the basis of ANOVA, following chronological steps have been followed: Checking assumptions- The very first thing to do is to check whether data satisfies the underlying assumptions of ANOVA analysis. There are two assumptions : i. Assumption of normality - For ANOVA analysis, it is presumed that the distribution is normal. Normality of data in the current study has been checked using K-S test. ii. Assumption of homogeneity of variances - This assumption is checked using Levene's test. Data analysis - Once the data satisfies both the assumptions, and then analysis is carried out using one - way ANOVA analysis. The p-value will reveal if there is any difference between the mean NPA indicators of the 4 categories of the banks. If there is no significant difference then the analysis ends here as no significant inference can be drawn. But if there is a significant difference then further digging into information is done using i. Post - hoc analysis tell us that where is the difference. Which all categories of banks significantly differ from each other viz.- a -viz. NPA indicator. ii. Mean plot - Mean plot graph will tell as to which category of bank is significantly higher or lower than other categories of banks with respect to each individual NPA indicator. Drawing inference - Finally, inferences can be drawn for the population and suggestions may be made.

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Hypothesis development For addressing the objectives of the study, detailed in above section, the following hypotheses are framed: Hypothesis 1: There is no statistical difference between CSR spending of auto industry companies and companies of other industries. Hypothesis 2: There is no statistical difference between CSR spending of banking and finance industry companies and companies of other industries. Hypothesis 3: There is no statistical difference between CSR spending of information and communication industry companies and companies of other industries. Hypothesis 4:There is no statistical difference between CSR spending of pharmaceutical industry companies and companies of other industries. Hypothesis 5: There is no statistical difference between CSR spending of oil drilling and refineries industry companies and companies of other industries. V.

Analysis and results

In this section of the study, data is analysed using one - way ANOVA to find out if there is any statistically significant difference between CSR spending of companies categorised into five industries. For this purpose, actual CSR spent by the companies in the accounting year 2014-15 has been taken. Companies are categorised into 5 industries. All the test results are analyzed on the basis of p-values at 5% level of significance. In the following tables, the results of ANOVA tests are presented. Checking of assumptions For running ANOVA, data should satisfy two assumptions. Thus, first before doing ANOVA analyses, following assumptions are checked: i. Assumption of normality - Normality of the distribution is checked using K-S test in SPSS. The result is presented in Table 1.

Dr. Monica Aggarwal (Pg. 8506-8515) 8511

Table 1 One-Sample Kolmogorov-Smirnov Test

N Normal Parameters

Mean Std. Deviation Most Absolute Extreme Positive Differences Negative Kolmogorov-Smirnov Z Asymp. Sig. (2-tailed)

CSRSPENT 50 58.4962 2.870 .219 .219 -.198 1.546 .917

As observed from the above table,since p- value is 0.917, thus null hypothesis is not rejected at 5% level of significance. Null, being that distribution is normal, therefore the above distribution is a normal distribution. Thus, first assumption is satisfied. ii. Homogeneity of variances : Second assumption for ANOVA analysis is to test for homogeniety of variances. This assumption is tested using Levene's test for homogeniety of variances. Result is reported in the table 2: Table 2: Levene's test for homogeniety of variances Levene Statistic

df1

df2

Sig.

15.707

.000

From the above table it is observed that as p- value (0.00) is less than .05(5% level of significance), therefore homogeniety of variances assumption is also satisfied. Results of ANOVA analysis To test the above hypotheses, one-way ANOVA analysis is conducted on SPSS 20.0 ( a statistical software) and the results are presented in Table 3.

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Table 3 - ANOVA analysis for CSR spent by companies across industries CSRSPENT Sum of df Squares Between Groups 127940.425 4 Within Groups 88368.054 45 Total 216308.480 49

Mean Square 31985.106 1963.735

Sig.

16.288

.000

From the above table, it can be observed that there is a statistically significant difference in CSR spending across five industries at 5% level of significance as p-value of the output is 0.00. Thus null hypothesis is rejected. Post hoc analysis The results of ANOVA analysis only tells whether there is difference in the mean CSR spending of various groups or not. If there is a difference then it is essential to find the specific industries which differ in terms of underlying variable which here is CSR spending. This information is gathered through post-hoc analysis. Results of post-hoc analysis are presented in the table 4: Multiple Comparisons Dependent Variable: CSRSPENT Tukey HSD (I) Type (J) Type

Auto ancilliaries

Mean Std. Difference Error (I-J)

Sig.

Banking and 19.81784 .000 finance 141.70700* Information and -41.38400 19.81784 .243 and communication Pharmaceutical

Oil drilling and refineries Auto and ancilliaries Information and Banking and communication finance Pharmaceutical Oil drilling and refineries Auto and Information and ancilliaries communication Banking and finance

95% Confidence Interval Lower Upper Bound Bound -85.3956 198.0184 -97.6954 14.9274

-75.16500* 19.81784 .004

-18.8536 131.4764

-14.25500

-70.5664 42.0564

19.81784 .951

141.70700* 19.81784 .000

85.3956

198.0184

100.32300* 19.81784 .000

44.0116

156.6344

66.54200*

19.81784 .013

10.2306

122.8534

127.45200 19.81784 .000

71.1406

183.7634

41.38400

-14.9274 97.6954

19.81784 .243

19.81784 .000 100.32300*

-44.0116 156.6344

Dr. Monica Aggarwal (Pg. 8506-8515) 8513 Pharmaceutical Oil drilling and refineries Auto and ancilliaries Banking and finance Pharmaceutical Information and communication Oil drilling and refineries Auto and ancilliaries Banking and Oil drilling and finance refineries Information and communication Pharmaceutical

-33.78100

19.81784 .442

-90.0924 22.5304

27.12900

19.81784 .650

-29.1824 83.4404

75.16500*

19.81784 .004

18.8536

131.4764

-66.54200* 19.81784 .013

-10.2306 122.8534

33.78100

19.81784 .442

-22.5304 90.0924

60.91000*

19.81784 .028

4.5986

14.25500

19.81784 .951

-42.0564 70.5664

117.2214

19.81784 .000 127.45200*

-71.1406 183.7634

-27.12900

19.81784 .650

-83.4404 29.1824

-60.91000* 19.81784 .028

-4.5986 117.2214

*. The mean difference is significant at the 0.05 level.

On the basis of satisfaction Assistant professors in Science are also significantly different from Assistant professors in Arts at a significance level of 5%. Although both faculty members are satisfied and on the bases of mean value of satisfaction level faculty in Science (mean= 63.19) are more satisfied then faculty in arts (mean= 57.19). Assistant professors in Science are not significantly different from Assistant professors in commerce/economics at a significance level of 5% for satisfaction level. Both faculty members are satisfied and on the basis of mean value of satisfaction level faculty in Science (mean= 63.19) are less satisfied then faculty in commerce/economics (mean= 57.19) Post hoc analysis suggests that at significance level of 5%, CSR spending of companies in auto and ancillary industry is significantly different from CSR spending in two industries viz. banking and finance and pharmaceutical industry. However, CSR spending of companies in banking and finance industry is significantly different from CSR spending in all other industries viz. auto and ancillary, information and communication, oil and drilling and pharmaceutical industry. CSR spending of companies in information and communication industry is significantly different from CSR spending in of only banking and finance industry.

Dr. Monica Aggarwal (Pg. 8506-8515) 8514

CSR spending of companies in pharmaceutical industry is significantly different from CSR spending in three industries viz. banking and finance, auto and ancillary and oil drilling and refinery industry. Finally, CSR spending of companies in oil drilling and refinery industry is significantly different from CSR spending in two industries viz. banking and finance and pharmaceutical industry. Mean plot The mean plot graph given below of different industries shows CSR spending by companies across different industries.

From the above mean plot graph, it can be observed that the mean CSR spending of banking and finance industry is highest whereas auto and ancillary industry has the lowest mean CSR spending. VI.

Contribution of the study

In the current study, an attempt has been made to examine whether there is significant difference in CSR spending of companies in different industries. From the analysis, it can be observed that despite the fact that CSR has been made mandatory, the spending varies significantly from one sector to another sector. Thus, an attempt of the government to formalise and make CSR a uniform practice is somewhat not practically visible. This observation of empirical analysis can be of great help in forming the basis for further policy formation and strategic decision making of the companies. Copyright ÂŠ 2017, Scholarly Research Journal for Interdisciplinary Studies

Dr. Monica Aggarwal (Pg. 8506-8515) 8515

VII.

Conclusion and scope for further research.

The current study is concluded with mentioning of a few areas not covered in this paper and thus an opportunity for further research First, the current study focused on five industries, further research may expand the number of industries. Second, the current analysis is carried out using actual CSR spending of the companies. Future research may take other measures of CSR to do the analysis. Finally, the current study focused only on companies operating in India. This was done primarily to study the post mandatory CSR regime which is only in India. Future research may include analysis on other countries which would allow for comparison between countries. References: ChandrakantaSahoo (2011) “Corporate Social Responsibility: Issues and controversies”, Journal of Business and Management Vol 3, No 2, ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online),pp 1-4. GahlotSushmita (2013),”Corporate Social Responsibility: Current Scenario”,Research Journal of Management Science, Vol. 2(12), 12-14, December (2013),pp12-14. Hess, D. &Dunfee, T.W. 2007. “The Kasky-Nike Threat to Corporate Social Reporting: Implementing a Standard of Optimal Truthful Disclosure as a Solution.” Business Ethics Quarterly, vol. 17(1): 5-32. Jaggi, G. (2014). Mandatory CSR in India: Proponents For and Against. IOSR Journal of Buisiness and Management, 16(6), 179-181 KPMG-UNEP, 2010. Carrots and Sticks-Promoting Transparency and Sustainability: An update on trends in Voluntary and Mandatory Approaches to Sustainability Reporting, KPMG Advisory NV, UNEP GRI. Lin, L.W. 2010. “Corporate social responsibility in China: window dressing or structural change?” Journal of International Law.28(1). SaritaMoharana (2013) “Corporate Social Responsibility: A Study of Selected Public Sector Banks in India”,IOSR Journal of Business and Management (IOSR-JBM), Volume 15, Issue 4 (Nov. Dec. 2013), pp 01-09. http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf http://www.kpmg.com/in/en/services/tax/flashnews/mca-clarification-on-csr-under-thecompanies-act2013.pdf