The current business landscape is filled with critical corporate social responsibility (CSR) challenges, compelling companies to adopt sustainable practices, even if they incur higher costs. However, reconciling the dual objective of profit maximisation and social practices remains challenging, especially for a developing nation. Addressing this issue, this study aims to investigate the impact of cost leadership strategies (CLS) on CSR spending of Indian firms, offering essential insights into the relationship between profit-orientated investments and cost management strategies in emerging economies. Furthermore, the study delves into the moderating influence of structural governance (encompassing board composition and effectiveness) on the relationship between CLS and CSR spending.
This research employs a fixed-effect panel data regression model with a clustering effect to empirically analyse 1960 firm-year observations of 245 unique firms listed on the S&P BSE 500 from 2015 to 2023. To ensure the reliability of the results and also to address endogeneity and autocorrelation issues, this study has employed alternative measures, two-stage least squares (2SLS) and lagged values of independent variables.
The research uncovers the adverse influence of cost strategy leadership on CSR spending in Indian companies. It also highlights the positive influence of independent directors and CSR committees in strengthening the balancing approach to profit generation and social responsibility to enhance their long-term sustainability and competitive advantage.
The paper suggests that cost-sensitive companies should direct their resources towards CSR initiatives that are in harmony with their corporate strategies, thereby ensuring cost efficiency and regulatory compliance. Moreover, by promoting the creation of environmentally sustainable products and services, Indian companies can effectively showcase their societal contributions.
This research presents a novel perspective offering significant insights into the relationship between profit-driven spending and cost-management strategies.
