1. Political Activism and Firm Innovation
- Author
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Syed Walid Reza, Alexei V. Ovtchinnikov, Yanhui Wu, Ecole des Hautes Etudes Commerciales (HEC Paris), and HEC Paris Research Paper Series
- Subjects
Economics and Econometrics ,JEL: D - Microeconomics/D.D7 - Analysis of Collective Decision-Making/D.D7.D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior ,Natural experiment ,Legislation ,JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G31 - Capital Budgeting • Fixed Investment and Inventory Studies • Capacity ,JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G38 - Government Policy and Regulation ,Politics ,JEL: O - Economic Development, Innovation, Technological Change, and Growth/O.O3 - Innovation • Research and Development • Technological Change • Intellectual Property Rights/O.O3.O38 - Government Policy ,Accounting ,Political science ,0502 economics and business ,050207 economics ,Estimation ,JEL: D - Microeconomics/D.D8 - Information, Knowledge, and Uncertainty/D.D8.D80 - General ,050208 finance ,Instrumental variable ,05 social sciences ,Causal effect ,Legislature ,Investment policy ,Political economy ,Political activism ,[SHS.GESTION]Humanities and Social Sciences/Business administration ,Economic system ,JEL: O - Economic Development, Innovation, Technological Change, and Growth/O.O3 - Innovation • Research and Development • Technological Change • Intellectual Property Rights/O.O3.O31 - Innovation and Invention: Processes and Incentives ,Finance - Abstract
Political activism positively affects firm innovation. Firms that support more politicians, politicians on Congressional committees with jurisdictional authority over the firms’ industries and politicians who join those committees innovate more. We employ instrumental variables estimation and a natural experiment to show a causal effect of political activism on innovation. The results are consistent with the hypothesis that political activism is valuable because it helps reduce political uncertainty, which, in turn, fosters firm innovation. Also consistent with this hypothesis, we show that politically active firms successfully time future legislation and set their innovation strategies in expectation of future legislative changes.Keywords: political contributions, innovation, investment policy, policy uncertainty
- Published
- 2019