Firm-level political risk and corporate innovation: evidence from US listed firms

Huson Ali Ahmed, Mohammad Muttakin and Arifur Khan

International Journal of Managerial Finance, 2022, vol. 19, issue 3, 519-538

Abstract: Purpose - The study examines the association between firm-level political risk and corporate innovation and also this study explores how financial constraint and growth level of a firm influence this association. Design/methodology/approach - A sample of 14,140 firm-year observations of the US firms from 2003 to 2020 is used. Unlike prior studies, this study uses a firm-level measure of political risk recently developed by Hassanet al.(2019) and measure innovation by patent and patent citation data and a text-based measure. A regression technique is used for empirical testing. Findings - This study finds that firm-level political risk is negatively associated with innovation and also document that firm-level political risk has a negative impact on innovation for financially constrained and high growth firms. The overall results are robust after addressing the issue of potential endogeneity using entropy balancing and two-stage least squares regression techniques. This study also documents qualitatively consistent results after using alternative measures of innovation as well as firm-level political uncertainty. Research limitations/implications - The findings of this study could help the managers to make better investment decision and improve economic efficiency through understanding the effect of firm-level political risk on innovation activities. Originality/value - The study concentrates on firm-level political risk and innovation and presents new insights that political risk at the microlevel is an important determinant for investment in innovative activities.

Keywords: Innovation; Patent; Citations; Political risk; G1; G18; O31 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-11-2021-0554

DOI: 10.1108/IJMF-11-2021-0554

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