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Local Gambling Preferences and Corporate Innovative Success

Yangyang Chen (), Edward Podolski (), S. Ghon Rhee and Madhu Veeraraghavan

Journal of Financial and Quantitative Analysis, 2014, vol. 49, issue 1, 77-106

Abstract: This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong.

Date: 2014
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