Economic Policy Uncertainty, Corporate Financialization, and Corporate Innovation Investment: Evidence from Chinese A-Share Listed Firms

Abstract

This study examines the relationship among economic policy uncertainty (EPU), corporate financialization, and corporate innovation investment using annual data for Shanghai and Shenzhen A-share listed firms from 2007 to 2022. Firm fixed-effects panel regressions are estimated with firm-level and macroeconomic controls, and the preferred specifications additionally absorb industry-year fixed effects. Short-run innovation investment is measured by the log change in R&D intensity, while a cumulative measure is used to characterize longer-run R&D dynamics. The results show that, after controlling for industry-year shocks, higher EPU is significantly associated with lower short- and long-run R&D investment. Corporate financialization has no statistically significant average effect in the full sample, but it significantly suppresses both short- and long-run R&D investment among large firms. The interaction between EPU and financialization is not significant across the main specifications. Heterogeneity tests further show that the negative association between EPU and R&D is pronounced among firms with weaker financing constraints and among firms operating in low-R&D-intensity industries. In low-concentration industries, EPU stimulates short-run R&D, whereas in high-concentration industries it suppresses both short- and long-run R&D. Replacing China-specific EPU with global EPU yields qualitatively consistent results. These findings highlight the importance of firm characteristics and competitive conditions in shaping innovation responses to policy uncertainty.