Debt Markets Retort to Mandatory Corporate Social Responsibility

Abstract

This study examines the debt markets’ response to mandatory CSR as prescribed by the Indian Companies Act 2013. Implementing this rule results in a 43 basis point increase in yield spreads for compliant firms, counteracting the Act’s debt-reducing provisions. The upsurge is attributed to the negative impact of mandatory CSR on expected cash flow. Leveraging a generative artificial intelligence (AI) model, the analysis distinguishes between mandatory CSR governance and expenditure. The former modestly boosts the issue-to-sales ratio by 1.2%, while the latter significantly drives the rise in yield spreads, illuminating the complex effects of mandatory CSR on debt market behavior.