The role of social capital in price efficiency: International evidence

This study finds that firms with higher social capital and trust, as measured by firm environmental and social (E&S) performance, demonstrate better stock price efficiency. The result in a sample of 45 countries remains robust to alternative approaches addressing the endogeneity concerns. This relation is mainly derived from a firm's E&S engagements related to third parties and the whole of society, which regulate the firm's information environment after accounting for other influences. The positive role of E&S performance is further shaped by the firm's associated macro-level trust and social capital, as proxied by the market's cultural and institutional factors. •Firm's non-Governance E&S performance mitigates information delay of stock prices•E&S activities build trust with stakeholders and improve information environment•E&S performance affects price efficiency through its attracting informed traders•Firms with high E&S performance suffer less price delay after BP Deepwater event•Price efficiency effect of E&S is stronger for firms in a country valuing trust more