Corporate Social Responsibility, Related Party Transaction and Earnings Management: Evidence from India

We examine the interplay between corporate social responsibility (CSR) and related party transactions (RPT). We find that while RPTs increase CSR expenditure overall, business RPTs specifically lead to higher CSR spending, while tone RPTs tend to decrease it. Further analysis shows that CSR expenditure is expropriated through earnings management for firms that have significant RPT. We also document that high ownership concentration reduces CSR expenditure. Our results are robust to the two-step system Generalized Method of Moments (GMM) model, Heckman two-step selection model, and several other robustness tests. The study extends the understanding of relationships between CSR and RPT and how earnings management activities and ownership concentration can affect the interplay. Policymakers should implement measures to restrict RPT misuse and establish robust monitoring mechanisms. Indian firms should strengthen corporate governance frameworks to improve transparency in RPT oversight, ensuring alignment with sustainability goals.