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No 1053:
Political Activism and Firm Innovation

Alexei Ovtchinnikov () and Syed Reza ()

Abstract: Political activism positively affects firm innovation. Firms that support more politicians, politicians on Congressional committees with jurisdictional authority over the firmsí industries and politicians who join those committees innovate more. The authors employ instrumental variables estimation and a natural experiment to show a causal effect of political activism on innovation. The results are consistent with the hypothesis that political activism is valuable because it helps reduce policy uncertainty, which, in turn, fosters firm innovation. Also consistent with this hypothesis, we show that politically active firms successfully time future legislation and set their innovation strategies in expectation of future legislative changes.

Keywords: political contributions; innovation; investment policy; policy uncertainty; (follow links to similar papers)

JEL-Codes: D72; D80; G31; G38; O31; O38; (follow links to similar papers)

48 pages, July 24, 2014

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