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

Julian Atanassov; Brandon Julio; Tiecheng Leng

doi:10.1093/rfs/hhae023

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

Julian Atanassov
, Brandon Julio^*
, Tiecheng Leng

^*Corresponding author for this work

School of Management

University of Nebraska-Lincoln
University of Oregon

Research output: Contribution to journal › Article › peer-review

54 Scopus citations

Abstract

We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R&D investment. The effect is stronger for politically sensitive and high-tech industries.The results are robust to different proxies for political uncertainty shocks. As predicted by models of investment under uncertainty, the real effects of political uncertainty critically depend on the type of the investment.

Original language	English
Pages (from-to)	2937-2970
Number of pages	34
Journal	Review of Financial Studies
Volume	37
Issue number	10
DOIs	https://doi.org/10.1093/rfs/hhae023
State	Published - 1 Oct 2024

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This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 9 Industry, Innovation, and Infrastructure

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10.1093/rfs/hhae023

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title = "The Bright Side of Political Uncertainty: The Case of R\&D",

abstract = "We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R\&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R\&D investment. The effect is stronger for politically sensitive and high-tech industries.The results are robust to different proxies for political uncertainty shocks. As predicted by models of investment under uncertainty, the real effects of political uncertainty critically depend on the type of the investment.",

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Y1 - 2024/10/1

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AB - We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R&D investment. The effect is stronger for politically sensitive and high-tech industries.The results are robust to different proxies for political uncertainty shocks. As predicted by models of investment under uncertainty, the real effects of political uncertainty critically depend on the type of the investment.

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

Abstract

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