Does Agency Conflict Explain the Relationship between Corporate Social Responsibility Expenditures and Firm Performance? Evidence from India

Agency conflicts, corporate social responsibility, CSR expenditure, firm performance, free cash flow, and cash holdings.

Purpose—This study explores the moderating impact of agency conflicts (free cash flow and cash holdings) on the nexus between CSR expenditure and firm performance.

Design/methodology/approach— A fixed-effects regression model is used to analyse the above description. This investigation utilises secondary data collected from the Prowess database. The study uses NSE-listed Indian firms for the F.Y. 2014-15 to 2024-25.

Findings—The study finds that CSR expenditure negatively influences the firm’s accounting performance, and excess cash holdings strongly moderate this negative relationship. However, free cash flow does not significantly moderate this negative link, suggesting that retained cash creates stronger agency conflicts than flow liquidity. Thus, the study unpacks the context and conditions that catalyse the CSR-performance relationship.

Originality/value—This paper provides a valuable contribution to the relationship between CSR expenditure and firm performance in the Indian context, from an agency-cost perspective, revealing liquidity-based agency conflicts, particularly regarding cash holdings.