Economic policy uncertainty and firm innovation: Evidence from a risk-taking perspective

This study investigates the impact of economic policy uncertainty (EPU) on firm innovation. Using data on China's A-share listed companies for 2001-2017, we find that EPU is in general negatively associated with firms' innovation output. Further, we observe that the negative association between EPU and innovation mainly exists in firms whose executives have a low risk preference and in firms with weak risk-taking ability. Additionally, we find that corporate innovation has a stronger positive effect on firm value when EPU is lower. Our research provides important evidence about the effect of EPU on firm innovation from a risk-taking perspective.

Automated summary

This study found that economic policy uncertainty has a negative impact on firm innovation, especially in companies with executives with low risk preference and weak risk-taking ability. When EPU is lower, corporate innovation has a stronger positive effect on firm value. This research provides important evidence on the impact of EPU on firm innovation from a risk-taking perspective.