Sharing weal and woe: Do geopolitical risks affect corporate innovation? A global supply chain perspective

Ziyin Huang, Zhuopin Guo, Junsong Chen and Jin Huang

International Review of Financial Analysis, 2025, vol. 106, issue C

Abstract: Two theories offer conflicting predictions on the relationship between uncertainty from geopolitical risks (GPR) and firm innovative investment and have not yet reached a consensus. To reconcile the two strands of literature and provide a fuller picture of GPR's effect, we explore the influence of GPR on companies' R&D investment in the global supply chain setting. By applying the customer-induced GPR we find that GPR has a positive impact on R&D investment. The results are robust after using different measures of GPR and instrumental variable approach. Moreover, we investigate the mechanism through which GPR affects firm R&D investment and find that growth option and firm liquidity are the main mechanisms. Further empirical analysis indicates that this positive impact is strengthened for firms that operate in high-tech industries, or have weaker political connections. Moreover, the positive impact of customer-induced GPR only generates when the largest company has a high sales proportion of the focal company.

Keywords: Geopolitical risk; Corporate innovation; R&D; Supply chain; China (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:106:y:2025:i:c:s1057521925005617

DOI: 10.1016/j.irfa.2025.104474

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