Does Political Corruption Impede Firm Innovation? Evidence from the United States

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Original languageEnglish
Journal / PublicationJournal of Financial and Quantitative Analysis
Online published31 Oct 2019
Publication statusOnline published - 31 Oct 2019

Abstract

We examine how local political corruption affects firm innovation in the United States. We find that firms located in highly corrupt areas are less innovative as measured by their patenting activities. The results are robust to the inclusion of a broad set of regional characteristics, instrumental variable analysis, matching analysis, difference-in-differences test, and alternative proxies for local corruption. Further analysis shows that reduced innovation incentives due to high extortion risk and decreased threat of competition could be the possible economic channels through which corruption affects innovation. Overall, our results indicate that local political corruption impedes corporate innovation in the United States.