The Interaction Effect of Text-Based Corporate Innovation and Economic Policy Uncertainty on Firm Performance

Prior research shows that corporate innovation enhances firm value. Using a novel text-based measure of innovation, we explore how the effects on performance change in presence economic policy uncertainty. We use large sample US firms over period 1996 to 2010 test relationship by executing firm-fixed effect regressions. Our results show significantly positively affects performance. However, our also reveal favorable value is reduced substantially times greater The latter result highlights urgent need for policymakers maintain long-term consistency policies encourage firms’ innovative activities. Several robustness checks including three proxies and four instrumental-variable analyses confirm original results. JEL Classification: E66, O31, G32