Economic policy uncertainty, entrepreneurial risk appetite, and corporation innovation in innovative cities – empirical evidence from the Shenzhen Special Economic Zone

Abstract

Purpose This study investigates the impact of economic policy uncertainty on corporation innovation in innovative cities. The study sheds light on different results from the previous literature by testing the moderator effects of entrepreneurial risk appetite on such impact. Design/methodology/approach A static panel estimator is applied to a Chinese sample of 416 firm-year observations from 2010 to 2019. This paper uses regression model to test the impact of uncertainty on enterprise innovation in innovative cities, and to test the regulatory role of entrepreneurial risk appetite. For a series of robustness analysis conducted by the author to deal with endogeneity, the results are robust. Findings The author finds reliable evidence that the economic policy uncertainty can promote corporations to invest more in R&D in innovative cities. In addition, the role of the entrepreneurial initiative is significant, and there is a positive moderating effect of entrepreneurial risk appetite between policy uncertainty and corporation innovation. Research limitations/implications From a practical point of view, this study examines the impact of economic policy uncertainty on corporation innovation in innovative cities for the first time. It emphasizes the role of entrepreneurial risk-taking in the development of corporation innovation in Shenzhen, an innovative city. This research is of great significance to the formulation of government policies and the innovative choice of entrepreneurs. In addition, the research shows that the entrepreneurial risk appetite in innovative cities can have a positive impact on enterprise innovation. Therefore, when formulating policies, the government should take the subjective factors of entrepreneurs into account and support enterprises with innovation potential. The evidence of this study also helps entrepreneurs make innovative decisions and enhance their confidence in enterprise development. Originality/value By studying the impact of economic policy uncertainty on enterprise innovation under the regulation of enterprise risk appetite, this study shows the subjective and positive role of entrepreneurs in risk grasp in innovative cities for the first time. In addition, it fills the gap of the impact of policy uncertainty on innovative urban enterprises. In fact, although it is traditionally believed that economic policy uncertainty has a negative impact on enterprise innovation, the sensitive findings of this study reveal completely different results from previous studies.