Does Political Corruption Impede Firm Innovation? Evidence from the United States

Forthcoming, Journal of Financial and Quantitative Analysis

71 Pages Posted: 18 Aug 2017 Last revised: 10 Sep 2019

See all articles by Qianqian Huang

Qianqian Huang

City University of Hong Kong

Tao Yuan

Nanjing University - School of Business

Date Written: October 23, 2015

Abstract

We examine how local political corruption affects firm innovation in the United States. We find that firms located in highly corrupt areas are less innovative as measured by their patenting activities. The results are robust to the inclusion of a broad set of regional characteristics, instrumental variable analysis, matching analysis, difference in differences test, and alternative proxies for local corruption. Further analysis shows that reduced innovation incentives due to high extortion risk and decreased threat of competition could be the possible economic channels through which corruption affects innovation. Overall, our results indicate that local political corruption impedes corporate innovation in the US.

Keywords: political corruption, innovation, patent, citation, government procurement

JEL Classification: G31, G38, D72

Suggested Citation

Huang, Qianqian and Yuan, Tao, Does Political Corruption Impede Firm Innovation? Evidence from the United States (October 23, 2015). Forthcoming, Journal of Financial and Quantitative Analysis. Available at SSRN: https://ssrn.com/abstract=3021715 or http://dx.doi.org/10.2139/ssrn.3021715

Qianqian Huang

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
852-3442-0284 (Fax)

Tao Yuan (Contact Author)

Nanjing University - School of Business ( email )

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

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