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The effect of firm-level perception of uncertainty on innovation: Evidence from China’s listed firms

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  • He, Chao
  • Li, Yanxi
  • Zhu, Jiawei

Abstract

The debate on how firms respond and react in the face of uncertainty is still unsettled. This study examines the effect of firm-level perception of economic policy uncertainty (EPU) on innovation decisions. Using the text-based measure of firm-level perception of EPU for China’s listed firms, we find an inverted U-shaped relationship between firm-level perception of EPU and corporate innovation. Further analysis shows that the positive effect of firm-level perception of EPU on corporate innovation is weaker in firms with higher financial constraint and investment irreversibility, while stronger in firms located in more competitive industries. Our results are robust to using alternative measures of primary variables and to endogeneity concerns.

Suggested Citation

  • He, Chao & Li, Yanxi & Zhu, Jiawei, 2022. "The effect of firm-level perception of uncertainty on innovation: Evidence from China’s listed firms," Economics Letters, Elsevier, vol. 221(C).
    • Handle: RePEc:eee:ecolet:v:221:y:2022:i:c:s0165176522003603
    DOI: 10.1016/j.econlet.2022.110886
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    References listed on IDEAS

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    Cited by:

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    2. Li, Jiayi & Ye, Shujun & Zhang, Yujin, 2023. "How digital finance promotes technological innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PA).
    3. Qianlong Ma & Bokun Hei & Guangchen Li, 2024. "Does economic policy uncertainty shorten the loan term structure? Evidence from China," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-25, August.

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    More about this item

    Keywords

    EPU; Firm-level perception; Corporate innovation; Textual analysis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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