A Study of the Asymmetric Impact of Economic Policy Uncertainty in Corporate Inter-temporal Innovation Decisions

By constructing an innovation decision-making model that includes economic policy uncertainty (EPU), this paper finds that EPU will have a negative impact on corporate innovation. Further analysis shows that it has asymmetric effects on long-term and short-term innovation decisions and puts forward two potential mechanisms of inhibitory effect in long-term: one is reducing follow-up investment, and the other is reducing marketization return. The empirical analysis verifies the inhibitory effect of EPU on corporate innovation and verifies two potential mechanisms. We further investigate the potential moderating effects: increased information transparency and of capital structure adjustment speed can mitigate the inhibition of EPU on corporate innovation. This study provides clear policy implication to ease the uncertainty of economic policy at the government level.