National geopolitical risk perception and corporate innovation

Lin Zhang and Sinmyong Sok

Abstract

This paper explores the impact of national geopolitical risk perception on corporate innovation behavior and its underlying mechanisms. We construct a national-level geopolitical risk perception index based on Chinese online newspaper data and use a sample of Chinese A-share listed companies from 2000 to 2022 to conduct an empirical study from the perspectives of innovation quantity, efficiency and quality. Our study finds that geopolitical risk perception significantly promotes the improvement of innovation quantity and efficiency but leads to a decline in innovation quality. Mechanism analysis indicates that geopolitical risk perception affects corporate innovation by intensifying market competition and reducing corporate profitability. Heterogeneity analysis reveals that firms with different levels of marketization, more political connections and different industry types exhibit significant differences in their innovation responses to geopolitical risk. This study provides a new perspective for understanding the relationship between geopolitical risk and corporate innovation and also offers a basis for relevant policy formulation.