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Economic policy uncertainty and firm innovation: Evidence from a risk-taking perspective

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  • Lou, Zhukun
  • Chen, Siyu
  • Yin, Wenwei
  • Zhang, Chuan
  • Yu, Xiaoyu

Abstract

This study investigates the impact of economic policy uncertainty (EPU) on firm innovation. Using data on China's A-share listed companies for 2001–2017, we find that EPU is in general negatively associated with firms' innovation output. Further, we observe that the negative association between EPU and innovation mainly exists in firms whose executives have a low risk preference and in firms with weak risk-taking ability. Additionally, we find that corporate innovation has a stronger positive effect on firm value when EPU is lower. Our research provides important evidence about the effect of EPU on firm innovation from a risk-taking perspective.

Suggested Citation

  • Lou, Zhukun & Chen, Siyu & Yin, Wenwei & Zhang, Chuan & Yu, Xiaoyu, 2022. "Economic policy uncertainty and firm innovation: Evidence from a risk-taking perspective," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 78-96.
    • Handle: RePEc:eee:reveco:v:77:y:2022:i:c:p:78-96
    DOI: 10.1016/j.iref.2021.09.014
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    3. Pinar Sener Tournus & Fatma Didin‐Sonmez & Elif Akben‐Selcuk, 2023. "How does the economic policy uncertainty affect the relationship between financial slack and firm performance in emerging countries?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 171-186, January.
    4. Lee, Chien-Chiang & Wang, Chih-Wei & Wu, Yu-Ching, 2023. "CEO inside debt and downside risk: Evidence from internal and external environments," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
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    8. Erzurumlu, S. Sinan & Erzurumlu, Yaman O. & Yoon, YongKi, 2022. "National innovation systems and dynamic impact of institutional structures on national innovation capability: A configurational approach with the OKID method," Technovation, Elsevier, vol. 114(C).
    9. Xi Zhong & Ge Ren & XiaoJie Wu, 2024. "Corporate philanthropy and bribery as distinctive responses to economic policy uncertainty: Do state-owned and private firms differ?," Asia Pacific Journal of Management, Springer, vol. 41(2), pages 641-677, June.
    10. Dang, Man & Puwanenthiren, Premkanth & Jones, Edward & Nguyen, Thieu Quang & Vo, Xuan Vinh & Nadarajah, Sivathaasan, 2022. "Strategic archetypes, credit ratings, and cost of debt," Economic Modelling, Elsevier, vol. 114(C).
    11. Songping Zhu & Gaofeng Yu, 2022. "The Impact of Economic Policy Uncertainty on Industrial Output: The Regulatory Role of Technological Progress," Sustainability, MDPI, vol. 14(16), pages 1-18, August.
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    More about this item

    Keywords

    Economic policy uncertainty; Firm innovation; Risk preference; Risk-taking ability; Firm value;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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