We examine whether political corruption impedes innovation. Using a comprehensive sample of U.S. firms, we find that corruption has a substantial, negative relation with the quantity and quality of innovation. These results are robust to using various fixed effects, proxies for corruption and innovation, and subsamples. To establish causality, we employ 2 instruments for corruption: local ethnic diversity and the corruption of the state a firm’s founder grew up in. Corruption appears to reduce innovation output both on average and for the most innovative firms. Overall, this evidence is consistent with the notion that corruption reduces social welfare by impeding innovation

We study how biases in financial reporting affect managers' incentives to develop innovative projects and to make appropriate investment decisions. Conservative reporting practices impose stricter verification standards for recognizing good news, and reduce the chance that risky innovations will lead to favorable future earnings reports. Holding all else constant, more conservative reporting therefore weakens the manager's incentive to work on innovative ideas, consistent with informal arguments in the extant literature. However, all else does not stay constant because the manager's pay plan will change in response to changes in the accounting system. We show that under optimal contracting, more conservative accounting does not stifle innovation in organizations, but rather increases incentives for innovation, as long as conservatism reduces the risk of an overstatement

We hypothesize that political activism is valuable because it helps reduce political uncertainty, which, in turn, fosters firm innovation. We find that firms that support more politicians, winning politicians, politicians on congressional committees with jurisdictional authority over the firms’ industries, and politicians who join those committees innovate more. We employ a natural experiment to show a causal effect of political activism on innovation. We also show evidence of intra-industry and geographical political activism spillovers

This paper investigates the effects of stock pledge by controlling shareholder on corporate's future innovation productivity and the mechanism through which stock pledge affects innovation. We find that both the existence of stock pledge by controlling shareholder and the percentage of shares pledged by controlling shareholder are significantly negatively related to firms' future innovation outputs and quality, and these baseline results are robust to a variety of tests on sample selections, model specifications, and variable definitions. We further adopt several methodologies to address endogeneity concerns and establish a causal relationship between stock pledge by controlling shareholder and innovation. We then provide evidence to show that the impediment effect of stock pledge by controlling shareholder on innovation is possibly due to controlling shareholder's fear of losing corporate control in case of innovation failure. Finally, we find that although stock pledge is a possible channel to relieve a firm's financial constraint, it does not encourage the firm to invest more in innovation

In this paper, we analyze how the physical layout of cities affects innovation by influencing the organization of knowledge exchange. We exploit a novel data set covering all census block groups in the contiguous United States with information on innovation outcomes, street infrastructure, as well as population and workforce characteristics. To deal with concerns of omitted variable bias, we apply commuting zone fixed effects and construct instruments based on historic city planning. The results suggest that variation in street network density may explain regional innovation differentials beyond the traditional location externalities found in the literature

End-of-day stock price manipulation is generally associated with short-termism, long-term damage to equity values, and reduced incentives for employees to innovate. We use a sample of suspected stock price manipulation events based on intraday data for stocks from nine countries over eight years and find evidence of negative effects of market manipulation on innovation. We show that these negative effects are particularly harmful to innovation in markets with low intellectual property rights and high shareholder protection

The purpose of this paper is to shed insights into the current inconsistencies of the control-innovation relationship. We draw on the dynamic capabilities literature to hypothesize that diagnostic and interactive control uses are indirectly related to innovativeness through their influence on the perceived formalization of coordination routines. That is, diagnostic and interactive control uses provide an input for an effective coordination process; the information provided allows for the coordination of activities to flourish. Further, we draw on contingency literature to hypothesize that the controls' direct effect on innovativeness depends on the degree of technological turbulence. Using data from a survey of 695 RD it includes a previously un-researched mediating variable (coordination routines), a moderator (technological turbulence), and two types of innovativeness (rate and newness). Second, the study demonstrates why and when diagnostic use is beneficial for innovativeness

Evidence for the relationship between management control practices and innovation is somewhat mixed, notably because of the insufficient attention devoted to the type of information management control practices provide. This study examines to what extent the interdependence of management control practices providing a mix of information for decision-making supports or impedes product innovation. We investigate whether the diversity of nonfinancial performance indicators and the functionality of cost information specifically and jointly contribute to product innovation. We also investigate whether environmental unpredictability moderates those effects. Survey data collected from a large sample of manufacturing firms show the specific effect of these management control practices on product innovation. More importantly, the functionality of cost information and diversity of nonfinancial performance measures are complements (substitutes) under high (low) levels of environmental unpredictability, and thus contribute to (impede) product innovation

Previous studies on accounting innovations emphasize the key role played by innovators and other core actors in theorizing and popularizing such innovations. This paper extends this literature by drawing attention to the role of actors who occupy a more peripheral position within the innovation‐based field. We regard accounting innovations as strategic action fields, in which core and peripheral actors interact to shape the trajectory of the innovation. In contrast to core actors, peripheral actors only weakly identify with the innovation‐based field and often occupy a core position in some other industry, professional, and/or geographical field. Given their embeddedness in these other fields, they are likely to try to accommodate an innovation with existing practices. Such frame blending can be problematic for core actors who envisage a more radical frame shift. Using the case of Beyond Budgeting, we show how the interplay between core and peripheral actors shapes the trajectory of an innovation, in terms of the composition of the field and the framing tactics that dominate at different stages in the development of the field. Our paper advances a perspective on accounting innovations which highlights the variable nature of the innovation space, in terms of different actors entering and exiting this space over time, as well as the importance of considering the overlaps between an innovation‐based field and other (industry, professional, geographical) fields

We analyze the change in firms’ innovation behavior (short-term adjustment and long-term strategy) in reaction to the credit supply shock to banks in the recent financial crisis 2008/2009. Using a matched bank-firm data set for Germany, we utilize the exogenous variation caused by the interbank market disruptions on credit supply in instrumental variable estimations. Concerning the short-term innovation adjustment in 2009, our results show that (i) current innovation activities, (ii) the initiation of additional innovation and (iii) the reallocation of unused labor resources to the innovation department are affected by the shock to bank financing. We find that the effect is more pronounced for product innovation than for process innovation. Investigating the impact on the long-term innovation strategy in reaction to the crisis, we find that (iv) the sensitivity to adopting any innovation-related strategy to cope with the crisis could not be attributed to the negative bank credit supply shock