Firm-level political risk and intellectual capital investment: Does managerial ability matter?

Abstract

This paper examines the impacts of firm-level political risks on intellectual capital investment decisions and how managerial ability adjusts this relationship. Using a broad sample of U.S firms from 2002 to 2021, our results show that firms with higher political risks reduce their investment in intellectual capital. This impact is more prominent for high-tech firms and firms with high financial distress, external financial dependence, and lower institutional ownership. Further, we find supportive evidence that managerial ability can prevent a substantial dimension (around 20%–40%) of the destructive impact of political risk on intellectual capital investment, which is also driven by firm-specific characteristics. These findings hold after a battery of robustness tests.