Firm-level perception of uncertainty and innovation activity: Textual evidence from China's A-share market

This study evaluates the firm-level perception of uncertainty using a textual analysis approach. Based on the annual reports of China's listed firms, we construct the perception of uncertainty from the management team and examine its impact on innovation activity. We find that managers' interpretations of the environment will affect their innovation incentives, and uncertainty leads to a decrease in the number of patent filings. The results are robust when we adopt an instrumental variable approach and apply alternative measures of variables. This study quantifies firms' perception of uncertainty and provides micro evidence for the correlation between uncertainty and innovation activity.

Automated summary

This study evaluates the firm-level perception of uncertainty using a textual analysis approach based on annual reports of China's listed firms. The research finds that managers' interpretations of the environment affect their innovation incentives, and uncertainty leads to a decrease in the number of patent filings. The results remain robust when using instrumental variable approach and alternative measures of variables, providing micro evidence for the correlation between uncertainty and innovation activity.