Geopolitical Risk and Corporate Innovation

42 Pages Posted: 19 Jan 2021 Last revised: 3 Dec 2021

See all articles by Ruchith Dissanayake

Ruchith Dissanayake

Queensland University of Technology - School of Economics and Finance

Yanhui Wu

Queensland University of Technology - School of Economics and Finance; Financial Research Network (FIRN)

Date Written: December 3, 2021

Abstract

Using both narrative-based and newspaper frequency-based measures that are plausibly uncorrelated with variation in business cycle, we document that increases in transnational geopolitical risk cause a reduction in R&D expenditure and patenting activity for a sample of publicly listed firms in the U.S. Whereas the effects of policy-related uncertainty and general macroeconomic uncertainty are stronger for domestic firms, the effects of geopolitical risk on innovation are significantly greater for firms with global exposure, i.e. firms with international segments and foreign income. The adverse effects of geopolitical risk on innovation are exacerbated for firms in industries with high creative destruction.

Keywords: Geopolitical Risk, Innovation, Patenting, R&D, Patent Value, Geopolitics

JEL Classification: G32, O31, O32, E22

Suggested Citation

Dissanayake, Ruchith and Wu, Yanhui, Geopolitical Risk and Corporate Innovation (December 3, 2021). Available at SSRN: https://ssrn.com/abstract=3722797 or http://dx.doi.org/10.2139/ssrn.3722797

Ruchith Dissanayake (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

HOME PAGE: http://www.rdissanayake.com

Yanhui Wu

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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