Firm-level political risk and corporate R&D investment

Emmanuel Boah and Nacasius U. Ujah

Journal of Empirical Finance, 2024, vol. 78, issue C

Abstract: We examine firms’ investment decisions in research and development during political uncertainty using US firm quarterly data from 2005 through 2021. By using quarterly data, we minimize stickiness and overly generalized assumptions. The findings show that firms invest more in research and development in times of high political risk. Monetarily, the significance translates to about $10.6 million injection into research and development. The results are more pronounced for firms in competitive industries, politically sensitive firms, firms with higher growth opportunities, and firms with more liquid assets. The results are robust to the test for correlation, addressing endogeneity, and alternative proxies adopted for the variables of interest. Overall, the findings of this study support the strategic growth option theory, which suggests that firms follow a preemptive strategy in periods of high uncertainty.

Keywords: Firm political risk; R&D; Real option; Strategic growth theory; Uncertainty (search for similar items in EconPapers)
JEL-codes: E6 G32 H32 O32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:78:y:2024:i:c:s0927539824000483

DOI: 10.1016/j.jempfin.2024.101513

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