How does fiscal policy uncertainty affect corporate innovation investment? Evidence from China's new energy industry

Abstract

This study investigates Chinese A-share listed companies in the new energy industry for the period 2007–2019. We shed new light on the nexus between fiscal policy uncertainty and corporate innovation investment. The main empirical findings are threefold. First, fiscal policy uncertainty significantly reduces new energy enterprises' innovation investment, and the adverse effect is mainly due to the decline in the incentive effect of government support on innovation investment. Second, product market competition reduces the adverse effect of fiscal policy uncertainty on innovation investment, which indicates that the strategic growth option theory holds to a certain extent. Third, bank credit constraint is the mechanism by which fiscal policy uncertainty restrains innovation investment. Overall, although there may be differences in the influence mechanism of fiscal policy uncertainty on innovation, the empirical evidence generally does not support the viewpoint of ownership differences. The conclusions continue to hold after controlling for endogeneity and conducting a series of robustness tests.