Publication Type
Working Paper
Version
submittedVersion
Publication Date
11-2015
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 plausibly 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 encourages firm-level R&D. Firms increase R&D investments by an average of 4.6% in election years relative to non-election years. The uncertainty effect is stronger in hotly contested elections, in politically sensitive and hard-to-innovate industries, and in firms subject to higher growth options and 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 and therefore the total effect of political uncertainty on the long-run growth of an economy is unclear.
Keywords
Political uncertainty, R&D, Growth options, Preemption
Discipline
Corporate Finance | Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
60
Embargo Period
11-10-2019
Citation
ATANASSOV, Julian; JULIO, Brandon; and LENG, Tiecheng.
The bright side of political uncertainty: The case of R&D. (2015). 1-60.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6421
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://ssrn.com/abstract=2693605