HEC Research Papers Series,
HEC Paris

Abstract: Political activism positively affects firm innovation. Firms that support more politicians, politicians on Congressional committees with jurisdictional authority over the firms’ 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

JEL-codes: D72; D80; G31; G38; O31; O38

48 pages, July 24, 2014

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