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Political uncertainty, innovation-driven strategy, and corporate R&D

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  • Cao, Yang
  • Chen, Yinghui
  • Zhang, Yuhe

Abstract

This paper investigates how political uncertainty affects corporate R&D by exploiting the implementation of the national strategy of innovation-driven development (SID) and the timing of provincial leader turnovers in China as a source of plausibly exogenous variation in uncertainty. We find that uncertainty over provincial leader turnovers after the implementation of SID encourages firm R&D. Firms increase R&D investments by an average of 10.89% in turnover years relative to non-turnover years after the implementation of SID. The effect is stronger in firms subject to higher growth options and in state-owned enterprises.

Suggested Citation

  • Cao, Yang & Chen, Yinghui & Zhang, Yuhe, 2022. "Political uncertainty, innovation-driven strategy, and corporate R&D," Research in International Business and Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:riibaf:v:60:y:2022:i:c:s0275531921002336
    DOI: 10.1016/j.ribaf.2021.101612
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    More about this item

    Keywords

    Innovation-driven strategy; Political uncertainty; R&D; Political turnover;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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