TITLE:
The Firm Innovation under the Uncertainty of Industry-Level Demand—Evidence from China
AUTHORS:
Jie Cai, Qi Wang, Anping Liu, Xiangyun Xu
KEYWORDS:
Industry-Level Demand, Uncertainty, Firm Innovation, Heterogeneity, Manufacturing Firms
JOURNAL NAME:
Theoretical Economics Letters,
Vol.14 No.6,
November
21,
2024
ABSTRACT: Voluminous studies have investigated the impact of uncertainty on investment or innovation, but few focus on the relationship between industry-level demand uncertainty and firm innovation. This paper uses the standard deviation of the industry’s sales growth rate to represent the uncertainty of demand. It employs the panel data of listed manufacturing firms in China for empirical analysis. Our results show that demand uncertainty inhibits the firm innovation activities. However, such a focal effect depends on the size, ownership of the firm, and the character of the industry to which the firm belongs, which indicates that the heterogeneity of firms is crucial for absorbing demand uncertainty shock. In addition, we also find that the aggregate and industry-specific demand uncertainty affect firm innovation negatively.