Trade policy uncertainty and the patent bubble in China: evidence from machine learning

Xingnan Xue, Peng Liang, Fujing Xue, Nan Hu and Ling Liu

Asia-Pacific Journal of Accounting & Economics, 2024, vol. 31, issue 5, 808-829

Abstract: This paper draws upon resource dependence theory and investigates how trade policy uncertainty affects firm strategic innovation management in China. Adopting a novel machine learning approach called Word2Vec, we construct and validate a measure of firm-level managers’ perceived trade policy uncertainty (TPU). We find that TPU has a positive effect on the number of total patent applications, but this positive effect is totally driven by low-quality patents instead of high-quality patents. Moreover, we document that firms have stronger incentives for such strategic innovation behavior when the underlying firms are more financially constrained, and/or when the management is more myopic.

Date: 2024
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DOI: 10.1080/16081625.2023.2298934

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