Study on CSR Activities of Indian
Pharmaceutical Companies in the Area of Public Health and Impact of CSR on the
Market Risk of These Companies
Dr. Vikrant Vikram Singh
Assistant Professor,
Amity Business School,
Amity University
Madhya Pradesh,
Prof.
(Dr.) Anil Vashisht
Dy. Pro Vice Chancellor,
Amity University
Madhya Pradesh
Abstract
Introduction: Corporate Social Responsibility is one of the key concerns in today’s
highly competitive business environment. Pharmaceutical companies in India are
highly concerned and engaged in various CSR programs specially in the field of
public health. Objectives: current study in conducted to study the impact of
CSR on market risk of healthcare companies in India and to analyse CSR
investment by healthcare companies in the area of public health. Originality: this area of CSR is still very less explored in our country and very
less amount of work has been done to find out impact of CSR on market risk. Material & Method: data of CSR, market risk premium and market value
at risk is analysed using panel data regression using e-views.
Result & Discussion: There is a significant impact of CSR on market risk
premium (Beta) and Market value at risk (VaR) of the company. Coefficient of
regression is negative which means increase in CSR will decrease the Beta and
VaR of the company. Hence it will reduce overall market risk of the company. Applications: Current study will help in understanding impact of
CSR on market risk with reference to pharmaceutical companies in India. It will
also help in extracting overall scenario of CSR with reference to public health
in India. Conclusion: Pharmaceutical companies in India can reduce their
market risk by increasing their involvement in CSR activities. It will help
them in improving overall market performance.
Keywords- CSR, Market Risk, Public Health, Value at Risk, Market
Risk Premium.
Introduction
Role played by corporate or business world
for the upliftment or betterment of society has been debated from time to time.
What contribution they should make? What are the responsibilities they should
take in charge of are not properly defined and incorporated in various
definitions of business world? Basic thought process says that when corporate
are running their business in society, they are using various resources of
society so it should be their core responsibility to do something for the
society which is not profit oriented. Corporate social responsibility is the
activity which is fulfilling these criteria to satisfy the core responsibility
of these corporate towards the society.
In
India companies are doing plenty
of work in the area of public health, social welfare, education, poverty
reduction and environment protection. These organizations are working in the
areas like gender equality, child health & welfare, women health &
welfare and backward development to uplift various sections of society. They
are coming with various innovative ideas to fulfil the gap and spread the
awareness about these problems. It might be as principal as choosing what
social issues and causes to help and which ones to dismiss.
The market is never reasonable, and it isn't for the absence of exertion
but since business sectors and purchasers particularly people and their conduct
are too unpredictable to possibly be comprehended and what can't be
comprehended can't be completely fixed, must be improved. There for social
welfare activities of the companies are reflected through sentiments of
investors and overall market performance of the company. Numerous studies have
shown the impact of CSR on market performance of the company.
CSR Initiatives of various companies
in India related to Public Health
In Indiamajor areas of social welfare
are healthcare facilities to poor, education to needy children, promoting
gender equality, healthcare facilities to women and children. Companies are
focusing on area like child appetite and malnourishment, neediness and lack of healthy
sustenance, and advancing preventive social insurance and sanitation
facilities. Companies particularly related to healthcare are doing various
activities for improving the quality of drinking water and sanitation
facilities for people living in slums and coming under below poverty section of
society.
CSR and Market Risk
Company’s focus on CSR and investment
in CSR related activities can have positive incentive for the company. It can
also help the company in terms of positive engagement of various partners of
the company and their attachment with the company if it is involved in various
social welfare activities. Social welfare program affects market risk of the
company in positive way.
Market risk associated with financial
performance of the company can be expressed by beta (risk premium) of the
company and for more advance measure of market risk (diversifiable risk) of the
company we can employ market Value at Risk (VaR) of the company.
Material
& Methods
In this study the main concern is the connection
between the market risk of Indian healthcare companies& corporate social
responsibility of these organizations in India. In particular, the examination
tried to comprehend to the effect of CSR Expenditure on market performance through
market risk which is associated with the company’s financial performance. The
risk on market for the company is to be analyzed through risk premium (Beta) of
the company along with market value at risk (VAR) of the company.
The research work aims to enrich the
knowledge and understanding of various factors of market risk of the company
which gets affected by corporate social responsibility in Indian scenario.
Objectives for this study are-
1-
“To
explore the present scenario of CSR expenditure by healthcare companies in
India.”
2-
“To
study the impact of CSR on the market risk (diversifiable risk) of the
company.”
Hypothesis of the Study
On the basis of objective of the study following hypotheses are
formulated-
H0: There is not significant impact
of CSR on the ‘market risk’ of the company.
H1: CSR has a significant impact
on the ‘market risk’ of the company.
Research Design
The aim of the study was to dig out the CSR
impact over the company’s market risk, where company’s market risk is
represented by market risk premium (Beta) and Market value at risk (VaR) of the
firm.This study utilized descriptive research to analyse the data and achieve
the objectives of this study.
Data Collection
Data for this study was collected
from various authentic database like website of Ministry of Corporate Affairs. CSR expenditure data of selected 12 companies from 2014-15 to 2016-17 and data for
market risk of the company for which daily market price data of all 12 selected
companies along with daily price data of BSE-Sensex was collected from 2015-16
to 2017-18. Then market risk premium (Beta) and market value at
risk (VaR) were calculated on yearly basis for selected 12
companies from 2015-16 to 2017-18 by using daily price data of different
companies and BSE-Sensex.
Sample
A sampling unit is an integral constitution
of the sample. In this study for evaluating the impact of CSR over the
company’s financial performance the sampling unit is 12, which comprises of
various healthcare companies which are listed in Bombay Stock Exchange (BSE)
and are top contributors of CSR as per the base year of the study i. e.
2014-15..
Data Analysis Tools
The data analysis was performed
by utilizing EViews software along with Microsoft Excel. Data of all the
variables was converter in panel data form and entered in E Views. Panel
data regression technique was used to analyze the data in E-views.
Results
and Discussion
This part of the study deals with analysis of
data collected from various sources through various statistical tools used in
the study. The sections in this chapter cover stepwise analysis of various
objectives of the study and hypothesis testing links with desired targets of
the research.
Table 4.1: CSR
Expenditures of Pharmaceuticals Companies in India
|
Year |
Prescribed
CSR (in
INR Cr.) |
Actual
CSR (in
INR Cr.) |
|
2014-15 |
215 |
132 |
|
2015-16 |
278 |
212 |
|
2016-17 |
325 |
245 |
|
2017-18 |
383 |
314 |
Source: Compilation performed by scholar
from ministry of corporate affairs (2018) & BSE India (2018)
In
pharmaceutical companies in India gap between prescribed CSR and actual CSR
spent was very huge, which has been decreased drastically.
In FY
2017-18 gap was almost 18 percent between prescribed CSR and actual CSR spent
that means pharmaceutical companies are showing more awareness in terms of CSR
spent and they are utilizing CSR budget much better than other companies in
India. One of the reasons behind this could be mandatory requirement and self-consciousness
by these pharmaceuticals’ companies in various areas of social welfare.
Table
4.2: Sector wise data of Prescribed and Actual CSR Spending in 2018-19
|
|
Auto and Auto Ancillaries |
Computer Software/IT |
Power & Energy |
Banking & Finance |
Metal, Mineral and Mining |
Pharmaceuticals |
|
Prescribed CSR |
464 |
1717 |
572 |
1254 |
703 |
383 |
|
Actual CSR |
464 |
1474 |
657 |
1091 |
598 |
314 |
|
% of Actual to Prescribed CSR |
100% |
86% |
115% |
87% |
85% |
82% |
Source: Compilation performed by scholar
from ministry of corporate affairs (2018) & BSE India (2018)
In
sector wise data Power & Energy and Auto & Ancillaries sectors are
leading in terms of utilization of prescribed CSR budget. Pharmaceutical companies are utilizing almost
82% of prescribed CSR Budget.
Table 4.3: Theme-wise number of CSR projects in
India
|
Thematic
Area |
INR Cr |
No of
Projects |
|
Education & Skills |
2973 |
1598 |
|
Poverty Alleviation, Healthcare and WASH |
2131 |
1260 |
|
Rural Development |
1091 |
433 |
|
Environment Sustainability |
795 |
433 |
|
Protection of Heritage & Art |
190 |
110 |
|
Rural Sports and Paralympic |
181 |
115 |
|
Gender Equality and Women
Empowerment |
146 |
177 |
|
Technology Incubation |
45 |
11 |
|
Benefits to Armed Forces Veteran |
32 |
17 |
|
Others (Projects, Admin, Misc) |
862 |
NA |
Source: Compilation performed by scholar
from ministry of corporate affairs (2018) & BSE India (2018)
If we
look at the theme wise categorization of CSR activities of different Indian
companies they are covering each and every aspect of social responsibility,
whether it is education or environment protection or healthcare or skill
development, they are spending money to improve all these basic areas of
corporate social responsibility. Especially in the area of public health very
huge number of projects is undertaken by companies and very big share of CSR
expenditure budget was allocated to this area.
After presenting the current scenario of CSR
in India impact of CSR on various components of market risk of the company was analysed
as followings as per the second objective of the study.
To
study the impact of CSR on the market risk of the company panel data regression
analysis technique is applied on various components of market risk of the
company as following-
Impact of CSR on the Market Risk
(Diversifiable Risk) of the Firm
To analyse the impact of CSR on the
Market Risk (Diversifiable Risk) of the company panel data regression was
applied where dependent variables were Market Risk Premium (Beta) and Market
Value at Risk (VaR) of the firm.
1- Impact of CSR on the Market Risk Premium
(Beta) of the Firm
Table 4.4: Regression Analysis of Impact of
CSR on Beta of the Company
|
Dependent
Variable: LBETA |
|
|
||
|
Method:
Panel Least Squares |
|
|
||
|
Sample:
2015 2018 |
|
|
||
|
Periods
included: 3 |
|
|
||
|
Cross-sections
included: 36 |
|
|
||
|
|
|
|
|
|
|
Variable |
Coefficient |
Std. Error |
t-Statistic |
Prob. |
|
C |
-0.217961 |
0.093316 |
-2.335737 |
0.0202 |
|
LCSR |
-0.721378 |
0.026840 |
-26.87697 |
0.0291 |
|
R-squared |
0.592673 |
Log likelihood |
254.9865 |
|
|
Adjusted
R-squared |
0.483512 |
Sum squared resid |
0.009960 |
|
Source:
Panel Data Regression performed by scholar on E- Views
Analysis of regression outcome of impact
of CSR on the Market Risk Premium (Beta) of the company-
Outcome of regression analysis shows that
probability value is 0.0291 which is less than 0.05; it means p-value is quite
low and it signifies that Corporate Social Responsibility (CSR) is
significantly related to change in the Beta of the company.
Hence, we can say that CSR has significant
impact on the Beta of the company. So our null hypothesis is rejected and
alternative hypothesis is accepted.
Regression coefficient between CSR and Beta
is -0.721378 which represent that mean change in the Beta is significantly
negative for one unit of change in the CSR while holding another variable in
the model constant.
t- Statistic represents the ratio between
estimated coefficient and standard error, in this outcome t-statistic is
-26.87697 which is less than -2.7. It represents our regression model is
providing significant result. As our regression model is a two-tailed test so
direction of t-value will not change the acceptance or rejection of null
hypothesis.
Standard error in the regression model comes
out to be 0.026840 which is relatively very low. Standard error measures the
statistical reliability of the coefficient estimated in the model.
Our value of standard error is 0.026840 which
mean there is approximately no noise in the estimated value in the model.
It also represents that most of the values of
CSR are fairly closer to the regression line. Most of the CSR estimates are
right on the top of regression line.
Sum
square residual value in regression outcome closer to zero is good for
regression model. In this case sum square residual value is 0.009960 which
means model has very less error and explain most of the data set used in the
study.
Log
likelihood value in regression outcome should be large as large value
represents better fit of data. In this case it is 254.9865 which mean best fit
of data set.
R-square value is the statistical measure of
how close the data is to the fitted regression line. It is always between 0 to
100 %.
In out outcome R-square value is 59.2673 %
which means close to 60 % Change in Beta is explained by CSR. Hence CSR has
significant impact on the Beta of the Company.
When our model is having more complexity, we
should rely on Adjusted R-square instead of R-square. For positive result
Adjusted R-square must be equal to or greater than 19 percent.
In outcome of our regression model Adjusted
R-square value is 48.3512 % it means our model accounts for 48.3512 % of the
total variability. In simple words 48.3512 percent variability of Beta is
explained by CSR.
Adjusted R-square outcome satisfactory as
almost 48 percent of the variability in Market Risk Premium (Beta) is explained
by our regression model, which is dependent on Corporate Social Responsibility
(CSR).
2- Impact of CSR on the Market Value at
Risk (VaR) of the Firm
Table 4.5: Regression Analysis of Impact
of CSR on Value at Risk (VaR)
|
Dependent
Variable: LVAR |
|
|
||
|
Method:
Panel Least Squares |
|
|
||
|
Sample:
2015 2018 |
|
|
||
|
Periods
included: 3 |
|
|
||
|
Cross-sections
included: 36 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable |
Coefficient |
Std. Error |
t-Statistic |
Prob. |
|
|
|
|
|
|
|
|
|
|
|
|
|
C |
-6.082301 |
0.265964 |
-22.86889 |
0.0000 |
|
LCSR |
-0.712979 |
0.027726 |
-25.71518 |
0.0447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
R-squared |
0.571976 |
Log likelihood |
585.6401 |
|
|
Adjusted
R-squared |
0.463831 |
Sum squared resid |
0.008974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Panel
Data Regression performed by scholar on E- Views
Analysis of regression outcome of impact
of CSR on the Market Value at Risk (VaR) of the company-
Outcome of regression analysis shows that
probability value is 0.0447 which is less than 0.05; it means p-value is quite
low and it signifies that Corporate Social Responsibility (CSR) is
significantly related to change in the Market Value at Risk of the company.
Hence, we can say that CSR has significant
impact on Value at Risk of the company. So our null hypothesis is rejected and
alternative hypothesis is accepted.
Regression coefficient between CSR and Market
Value at Risk is -0.712979 which represent that mean change in Value at Risk
(VaR) is significantly negative for one unit of change in the CSR while holding
another variable in the model constant.
t- Statistic represents the ratio between
estimated coefficient and standard error, in this outcome t-statistic is
-25.71518 which is less than -2.7. It represents our regression model is
providing significant result with two-tailed test statistics.
Standard error in the regression model comes
out to be 0.027726 which is relatively very low. Standard error measures the
statistical reliability of the coefficient estimated in the model.
Our value of standard error is 0.027726 which
mean there is approximately no noise in the estimated value in the model.
It also represents that most of the values of
CSR are fairly closer to the regression line. Most of the CSR estimates are
right on the top of regression line.
Sum
square residual value in regression outcome closer to zero is good for
regression model. In this case sum square residual value is 0.008974 which
means model has very less error and explain most of the data set used in the
study.
Log
likelihood value in regression outcome should be large as large value
represents better fit of data. In this case it is 585.6401 which mean best fit
of data set.
R-square value is the statistical measure of
how close the data is to the fitted regression line. It is always between 0 to
100 %.
In out outcome R-square value is 57.1976 %
which means close to 57 % of Market Value at Risk is explained by CSR. Hence
CSR has significant impact on Market Value at Risk of the Company.
When our model is having more complexity, we
should rely on Adjusted R-square instead of R-square. For positive result
Adjusted R-square must be equal to or greater than 19 percent.
In outcome of our regression model Adjusted
R-square value is 46.3831 % it means our model accounts for 46.3831 % of the
total variability. In simple words 46.3831 percent variability of Market Value
at Risk is explained by CSR.
Adjusted R-square outcome satisfactory as
almost 46 percent of the variability in Market Value at Risk is explained by
our regression model, which is dependent on Corporate Social Responsibility
(CSR).
So
conclusively we can say that variables representing market risk (Beta and Value
at Risk) of the firm in are significantly dependent on Corporate Social
Responsibility (CSR) of the company.
CSR has significant impact on the market risk
of the company. Market risk is negatively related to CSR of the company as per
unit change in CSR accounts for negative change in various parameters of market
risk of the company. Adjusted R-square and coefficient values for both Beta and
Market Value at Risk with respect to CSR suggest that CSR has significant
impact on these variables.
Conclusion
As per
the observation of this study CSR has direct link with the market performance
of the company. After the analysis the study showed, that CSR has significant
impact on market risk of the company and increase in CSR may result into
reduction in market risk of the company. Data analysis showed that for most of
the companies which are increasing their CSR budget are getting results in
terms of improvement in various market indicators of the organization.
Organizations
who are actively involved in social welfare activities they can show their work
in public domain so that people can have idea about social responsibility of
the company. If people come to know about various welfare activities of the company,
it will create positive image of the company and it will have positive impact
on people’s psyche about the company. If a company is knowingly or unknowingly
involved in any act or program which has inverse impact on the society,
community and environment that negative word of mouth spread faster than
positive one.
Study
covered impact of CSR on market risk premium (Beta) and market value at risk
(VaR) of the company which are representatives of market risk of the company.
Outcome of this study revealed that CSR has negative impact on Beta and VaR of
the company so we can conclude that increase in CSR will reduce the overall
market risk of the company associated with financial performance of the
company.
This
research will help in elevating positive angles identified with CSR and its
positive effect on the market performance of the organization. It displays the
business points of interest to organizations on the off chance that it is 'key'
in nature. The exploration has likewise centred on the moral parts of CSR.
Responsibility towards society should not only be a shown to issues when they
emerge but should be continuous and ongoing process. Just if organizations
incorporate moral worries since its evolvement and should include morals in
their day to day procedure and social responsibility, as an idea is coordinated
into day to day decision making process.
Conflict of Interest –
This study is an exploratory research based upon secondary data
therefore conflict of interest is hard to find out. But the study can be
extended for the other variables of financial performance and impact of CSR on
other variables as well.
Source of Funding – Not required.
Ethical Clearance –
As secondary data has been
used for the research, available on public domain, therefore ethical clearance
in not required. However, references required for the data has been mentioned
in the study.
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