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Uncertainty breeds opportunities: Assessing climate policy uncertainty and its impact on corporate innovation

Author

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  • Liu, Yulin
  • Chen, Lin
  • Cao, Zhiling
  • Wen, Fenghua

Abstract

Using over seven million online news articles to construct the climate policy uncertainty (CPU) index, this study reveals a positive relation between CPU and corporate innovation, with a particular emphasis on green and inventive innovation. Exogenous shocks and instrumental variable methods further confirm this finding. Notably, this relation is more pronounced in the new energy, high-tech, and highly competitive sectors while weaker in the fossil energy industry. Monitoring pressure, CEO innovation awareness, and environmental, social, and governance (ESG) practices emerge as key reasons why firms foster innovation amidst climate policy uncertainty. Our empirical results support the theory of strategic growth options and directed technical change, provide crucial insights into evaluating and understanding policy uncertainty, and identify comprehensive corporate innovation strategies in response to this uncertainty.

Suggested Citation

  • Liu, Yulin & Chen, Lin & Cao, Zhiling & Wen, Fenghua, 2024. "Uncertainty breeds opportunities: Assessing climate policy uncertainty and its impact on corporate innovation," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924004927
    DOI: 10.1016/j.irfa.2024.103560
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