How firm’s perception of economic policy uncertainty influences innovation quality

ABSTRACT

Comprehending the consequences of firms’ perception of uncertainty is crucial in the context of a dynamic global economy. Based on a data set of China A-listed firms during 2007-2019, this paper constructs the indicator of firms’ perception of economic policy uncertainty (PEPU) through a textual analysis approach and examines its impact on the quality of firms’ innovation outputs. Employing multi-dimension measures, we find that corporate PEPU has a noteworthy negative impact on the quality of corporate innovation output. Further analysis shows that firms scale down their R&D investment intensity and gravitate towards conservative R&D projects as firms’ PEPU rises. Additionally, the firm will enhance its collaborative R&D efforts with other firms to mitigate risk. These strategic R&D behaviors guarantee the quantitative stability of a firm’s innovation output, but they also undermine firms’ innovation quality. These findings have significant policy implications for the policy-making process in emerging markets.

KEYWORDS:

• Perception of economic policy uncertainty
• innovation quality
• strategy R&D behaviors
• A-listed company

JEL CODES:

• L26
• O32
• D22
• E22

Disclosure statement

No potential conflict of interest was reported by the author(s).

Acknowledgement

Renai Jiang gratefully acknowledge the financial support from the National Natural Science Foundation of China (71874138) and the Shaanxi Soft Science Research Program (2023-CXRKX-025).

Notes

1 According to EPU index developed by Baker et al. (2016), from Jan 2000 to March 2023, the average value of China EPU is 261.74, roughly 2 times of US.