How firm’s perception of economic policy uncertainty influences innovation quality

Abstract

ABSTRACT Comprehending the consequences of firms’ perception of uncertainty is crucial in the context of a dynamic global economy. Based on a data set of China A-listed firms during 2007-2019, this paper constructs the indicator of firms’ perception of economic policy uncertainty (PEPU) through a textual analysis approach and examines its impact on the quality of firms’ innovation outputs. Employing multi-dimension measures, we find that corporate PEPU has a noteworthy negative impact on the quality of corporate innovation output. Further analysis shows that firms scale down their R&D investment intensity and gravitate towards conservative R&D projects as firms’ PEPU rises. Additionally, the firm will enhance its collaborative R&D efforts with other firms to mitigate risk. These strategic R&D behaviors guarantee the quantitative stability of a firm’s innovation output, but they also undermine firms’ innovation quality. These findings have significant policy implications for the policy-making process in emerging markets.