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The Bright Side of Political Uncertainty: The Case of R&D

Author

Listed:
  • Julian Atanassov
  • Brandon Julio
  • Tiecheng Leng

Abstract

We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R&D investment. The effect is stronger for politically sensitive and high-tech industries.The results are robust to different proxies for political uncertainty shocks. As predicted by models of investment under uncertainty, the real effects of political uncertainty critically depend on the type of the investment. JEL G18, G38, O31, O32

Suggested Citation

  • Julian Atanassov & Brandon Julio & Tiecheng Leng, 2024. "The Bright Side of Political Uncertainty: The Case of R&D," The Review of Financial Studies, Society for Financial Studies, vol. 37(10), pages 2937-2970.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:10:p:2937-2970.
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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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