Beschreibung:
This study examines firm-level political risk and its role in influencing corporate innovation. We analyze four dimensions of innovation: patent output, quality, radicalness, and efficiency, based on a sample of US-listed firms from 2001 to 2020. We find a negative effect on patent output and patent quality. The effects differ across eight dimensions of political risk, amongst which the negative impact is greater in political risk topics relating to budget economics, health care, and government reform. We employ ideological differences between Democratic and Republican nominees as instruments to validate our primary findings. Further, the negative relationship is more pronounced in firms facing high economic policy uncertainty and product market competition. Our channel analysis reveals that the cost of capital and external monitoring intensity are two channels responsible for this negative relationship. More importantly, firm-level political risk reduces long-term innovation performance in terms of patent radicalness and innovation efficiency, especially in political areas such as technology, health care, and budget economics. Our study provides novel evidence of the real effects of firm-level political risk on corporate innovation and provides practical and policy insights that help innovator firms in innovation decision-making