“…These moderating effects extend studies on the contextual factors that influence the impact of managerial long‐termism on firm innovation. Some studies believe EPU reduces managers' willingness to innovate (Bloom et al, 2014; Gulen & Ion, 2016; Nguyen & Kim, 2023). However, companies led by long‐termist managers exhibit a sustained level of innovative vigor even in the face of high EPU.…”
Section: Discussionmentioning
confidence: 99%
“…The government conducts macroeconomic regulation by publishing related economic policies, and fluctuations of policies cause economic entities to be unable to predict whether, when, and how the government will change current economic policies (Gulen & Ion, 2016), which indicates that the external EPU faced by enterprises increases. EPU significantly contributes to environmental uncertainty (Nguyen & Kim, 2023). Therefore, whether and how EPU affects the impact of managerial long‐termism on corporate innovation is another important issue that must be explored.…”
Section: Theoretical Background and Hypothesesmentioning
Adhering to long‐termism is essential for sustaining and promoting corporate innovation in the face of future uncertainty. In this study, we use machine learning and text analysis methods to construct a proxy variable for managerial long‐termism and explore how managerial long‐termism affects corporate innovation using a sample of 13,117 firm‐year observations from 2010 to 2020 in China. We find managerial long‐termism has a positive effect on corporate innovation, which is mainly achieved by mitigating agency problems. The positive effect of managerial long‐termism on corporate innovation is more pronounced when an enterprise faces stronger economic policy uncertainty and has more slack resources. Additional analysis shows that managerial long‐termism accelerates exploratory innovation and contributes to the high‐quality development of enterprises. Our findings advance research on long‐termism in corporate governance and generate meaningful insights into the antecedents of corporate innovation from the perspective of time preference.
“…These moderating effects extend studies on the contextual factors that influence the impact of managerial long‐termism on firm innovation. Some studies believe EPU reduces managers' willingness to innovate (Bloom et al, 2014; Gulen & Ion, 2016; Nguyen & Kim, 2023). However, companies led by long‐termist managers exhibit a sustained level of innovative vigor even in the face of high EPU.…”
Section: Discussionmentioning
confidence: 99%
“…The government conducts macroeconomic regulation by publishing related economic policies, and fluctuations of policies cause economic entities to be unable to predict whether, when, and how the government will change current economic policies (Gulen & Ion, 2016), which indicates that the external EPU faced by enterprises increases. EPU significantly contributes to environmental uncertainty (Nguyen & Kim, 2023). Therefore, whether and how EPU affects the impact of managerial long‐termism on corporate innovation is another important issue that must be explored.…”
Section: Theoretical Background and Hypothesesmentioning
Adhering to long‐termism is essential for sustaining and promoting corporate innovation in the face of future uncertainty. In this study, we use machine learning and text analysis methods to construct a proxy variable for managerial long‐termism and explore how managerial long‐termism affects corporate innovation using a sample of 13,117 firm‐year observations from 2010 to 2020 in China. We find managerial long‐termism has a positive effect on corporate innovation, which is mainly achieved by mitigating agency problems. The positive effect of managerial long‐termism on corporate innovation is more pronounced when an enterprise faces stronger economic policy uncertainty and has more slack resources. Additional analysis shows that managerial long‐termism accelerates exploratory innovation and contributes to the high‐quality development of enterprises. Our findings advance research on long‐termism in corporate governance and generate meaningful insights into the antecedents of corporate innovation from the perspective of time preference.
“…Firms' current investment behavior will be hampered by rising economic policy uncertainty [1]. Given the highly irreversible nature of innovation investment and the complexities of the patent application procedure, increased economic policy uncertainty may lead corporations to reduce or postpone R&D spending, resulting in reduced innovation output [16,24]. Using cross-country industry data, Mbanyele and Wang [22] found that economic policy uncertainty hinders innovation, and this negative impact is smaller in countries with a better legal infrastructure.…”
Section: Hypothesis Developmentmentioning
confidence: 99%
“…The real option theory states that innovation investment is highly irreversible, and uncertainty increases the value of waiting options. Therefore, when companies are confronted with uncertainty, they opt to postpone investments in innovation and lower the number of patent applications [16][17][18][19][20][21][22][23][24]. Another strand of the literature, based on the strategic growth options theory, contends that policy uncertainty creates both opportunities and risks for enterprises.…”
Section: Introductionmentioning
confidence: 99%
“…Although there is a growing body of literature examining the impact of economic policy uncertainty on firms' innovative behavior, it does not reach consistent conclusions. Some of the literature, based on the real options theory, argues that economic policy uncertainty discourages firms from investing in innovation [16][17][18][19][20][21][22][23][24]. In con-trast, another section of the literature argues that uncertainty in the external environment is actually what stimulates the competition of enterprises, and thus innovation [25][26][27][28][29][30][31][32][33].…”
Innovation is the main driving force of the sustainable development of enterprises. Economic policy uncertainty has increased dramatically in recent years due to events such as COVID-19, which will alter the business environment of enterprises and ultimately affect their innovation behavior. How economic policy uncertainty will affect corporate innovation has become a crucial topic, but empirical studies have not reached consistent conclusions, and few have noted the heterogeneity of different firms’ perceptions of uncertainty. This study used a textual analysis approach to create firm-level economic policy uncertainty indicators from the texts of annual reports of Chinese A-share listed firms. Based on the effectiveness of our measure of economic policy uncertainty, we further examined its impact on firm innovation. We find that our uncertainty measure has negative effects on enterprise innovation activity, and this negative impact is more significant among non-state-owned enterprises, and firms with higher financial constraints and lower government subsidies. We extend the measurement of economic policy uncertainty from the micro level and provide some suggestions for policymakers at the macro level. In the period of increasing uncertainty in the external environment, the government should try to maintain the stability and transparency of economic policies, and provide more targeted policy support to enterprises, such as by broadening their financing channels and providing innovation subsidies.
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