Geopolitical risk and corporate innovation: Evidence from China

This study examines the impact of geopolitical risk (GPR) on corporate innovation in China. Using the GPR Index constructed by Caldara and Iacoviello (2018), we find that, first, GPR has a significantly positive effect on corporate innovation. Second, the effect is more pronounced for state-owned firms and firms with more government subsidies, overseas businesses, and product market competition. Third, GPR motivates firms to innovate mainly through the degree of threat. Finally, heterogeneous exposure to GPR is positively correlated with corporate innovation. This study enriches the empirical research on the impact of GPR on corporate decision-making. • Geopolitical risk is positively associated with corporate innovation in China. • The relationship is shaped by ownership, government subsidies, overseas business, and product market competition. • Geopolitical risk exposure positively affects corporate innovation.