Political uncertainty, innovation-driven strategy, and corporate R&D

This paper investigates how political uncertainty affects corporate R&D by exploiting the implementation of the national strategy of innovation-driven development (SID) and the timing of provincial leader turnovers in China as a source of plausibly exogenous variation in uncertainty. We find that uncertainty over provincial leader turnovers after the implementation of SID encourages firm R&D. Firms increase R&D investments by an average of 10.89% in turnover years relative to non-turnover years after the implementation of SID. The effect is stronger in firms subject to higher growth options and in state-owned enterprises.