This study examines whether corporate social responsibility (CSR) can provide firms insurance-like protection against negative events under mandatory CSR regulations. Leveraging the unique context of India, where the Companies Act of 2013 (CA2013) mandates certain firms to allocate funds for CSR expenditure, our study reveals a reduction in both the magnitude and statistical significance of CSR’s insurance effect on stock market reactions to negative events following the implementation of CA2013. Notably, this reduction in the insurance effect is observed not only in mandatorily-spending firms but also in voluntarily-spending firms, including non-regulated firms engaging in CSR and regulated firms exceeding the mandated CSR spending threshold. Our study contributes to the CSR literature by delineating the boundary conditions of CSR as a form of reputation insurance in the context of mandatory CSR regulations. Furthermore, it provides further empirical evidence of the spillover effect of CSR, demonstrating how stakeholders extend their perceptions of CSR practices from specific firms to peer firms within the market.
