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

52 Pages Posted: 21 Aug 2015 Last revised: 29 May 2019

See all articles by Julian Atanassov

Julian Atanassov

University of Nebraska

Brandon Julio

Lundquist College of Business, University of Oregon

Tiecheng Leng

Sun Yat-sen University

Date Written: May 1, 2019

Abstract

We examine the relationship between political uncertainty and R&D investment by exploiting the timing of U.S. gubernatorial elections as a source of exogenous variation in uncertainty. In contrast to the literature documenting negative effects of political uncertainty on real investment, we find that uncertainty over government policy stimulates firm-level R&D. Firms increase R&D investments by an average of 3.8% in election years relative to non-election years. The uncertainty effect is stronger in highly contested elections, in politically sensitive industries, and in firms facing greater product market competition. Our findings suggest that, as predicted by models of investment under uncertainty, the real effects of political uncertainty depend on the properties of the investment and the degree of product market competition.

Keywords: Political uncertainty, R&D, Investment under uncertainty

JEL Classification: G18, G38, O31, O32

Suggested Citation

Atanassov, Julian and Julio, Brandon and Leng, Tiecheng, The Bright Side of Political Uncertainty: The Case of R&D (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=2648252 or http://dx.doi.org/10.2139/ssrn.2648252

Julian Atanassov

University of Nebraska ( email )

CBA
University of Nebraska, Lincoln
Lincoln, NE 68588
United States

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Tiecheng Leng (Contact Author)

Sun Yat-sen University ( email )

135 Xingang West Road
Guangzhou, 510275
China

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