Hardship Breeds Creativity: Climate Threats and Corporate Innovation
50 Pages Posted: 2 Aug 2022
Date Written: July 27, 2022
Abstract
This study examines whether and how climate threats (droughts) affect the innovation activities of firms in food industries around the world. We find that firms in countries with a less positive Palmer Drought Severity Index (PDSI), i.e., more drought-like conditions, file more patents and that such patents receive higher citations in the future. This association is stronger in countries with more human capital, better capital market development, and a national culture with a long-term orientation. Finally, we provide suggestive evidence that national innovation activities can reduce the exposure of corporate profits to climate threats. Overall, the evidence provides support for directed technical change theory.
Keywords: Climate Threats, Corporate Innovation, Directed Technical Change Theory, National Institutions, National Culture
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