How does corporate social responsibility engagement affect the information content of stock prices?

This paper investigates the effect of corporate social responsibility on the information content of stock prices. Using a sample of 877 United States‐listed firms, we provide evidence that a firm's corporate social responsibility (CSR) performance has a negative effect on stock price synchronicity, suggesting that socially responsible firms commit themselves to high transparency standards, leading to more informative stock prices. Moreover, the negative relationship between sustainable corporate policies and stock price synchronicity is more pronounced in better‐governed, highly competitive, and closely monitored firms. Our findings are robust to potential endogeneity problems, additional control variables, and alternative sample composition. This study contributes to the literature by providing original insights on the CSR performance link with firm‐specific information impounded in stock prices. Further, we uniquely contribute to the CSR dimensions literature by separately analyzing which CSR dimension contributes to improving the firm's information environment.