IPE Public Seminar - See What I Do and Do What I Say: Political Turbulence and Chinese Firms’ Innovation Strategies

Political Turbulence and Chinese Firms’ Innovation Strategies

We explore how firms would adjust their innovation strategies in response to political turbulence. Contrary to the prediction of threat rigidity theory, evidence from Chinese public firms indicates that in China, firms would significantly increase their emphasis on innovation, patent application, and R&D investments in the aftermath of political turbulence caused by the downfall of major politicians. We then reconcile such surprising findings by highlighting that such increases in innovation following political turbulence are primarily driven by the industries and technologies that specifically emphasize the policy orientations of the central government. In addition, we further explore the implications of innovation as strategic responses to political turbulence, showing that firms putting more emphasis on innovation are more likely to receive government support in the aftermath of political turbulence.