Impact of “Distance” on Corporate Social Responsibility: Evidence from an Emerging Market

Abstract

Multinational enterprises resort to several market and nonmarket strategies to overcome the liability of foreignness (LOF) faced by them in overseas markets. A lesser explored nonmarket strategy to overcome LOF and gain legitimacy in the host country is through corporate social responsibility (CSR) expenditure. This paper empirically examines the role of “distance” on the CSR practices of foreign subsidiaries in India. Further, the study explores the role of market potential of the emerging market host country as proxied by the Gross Domestic Product in moderating the relation between distance variables and CSR expenditure. Our sample consists of CSR expenditure data of 69 foreign subsidiaries in India from 17 countries over the period from 2014 until 2018. The results show that cultural and economic distances impact the CSR expenditure of foreign subsidiaries positively and significantly. This relationship is negative and significant for administrative distance and insignificant for the case of geographic distance. Furthermore, it is observed that the market potential of the host country can make the foreign subsidiaries overlook the existence of distances.