Socially responsible practices are transmitted via international trade – USAPP American Politics and Policy (blog)

Emerging market firms use CSR as strategic investments to cater to stakeholder preference in the export markets, write Shantanu Banerjee, Swarnodeep Homroy and Aurélie Slechten.

Why firms engage in corporate social responsibility (CSR) is widely debated, particularly in the context of the 2019 Business Roundtable statement by US chief executives, which redefined the purpose of a corporation as promoting an economy that serves not only shareholders but all stakeholders, including customers, employees, suppliers and communities. Despite these debates, there is surprisingly little direct evidence of the motivations for firms to engage in CSR. One school of thought argues that CSR is an investment in the long-term reputation of the firm, driven by considerations such as preferences of customers and other stakeholders. An alternative view is that managers use CSR for their own benefit, even if it is wasteful for the company.

In our research we use product-wise exports of Indian companies to different countries to examine whether socially responsible practices are transmitted through international trade. We examine Indian companies’ CSR expenses following exogenous export-shocks to the stakeholder preference for CSR. We hypothesise that positive demand shocks from export markets with a higher stakeholder preference for corporate social practices will be associated with an increase in affected firms’ CSR expenses. In contrast, similar shocks from countries with a lower stakeholder preference for corporate social