Economic Policy Uncertainty,Internal Control And Innovation

Today,the economy of the world has entered a conversion of the kinetic energy of the old and new.To create a high-quality economy,all the countries should seize opportunities,overcome challenges,persist in reform and innovation,and constantly tap growth momentum.It is very important for both the countries and enterprises under globalization.Since the financial crisis,the world situation has changed rapidly.In order to alleviate the impact of the financial crisis and promote domestic economic growth,China has issued a series of economic policies.The Sino-US trade war has exacerbated the uncertainty of economic policies.Uncertainty brings risks as well as opportunities.In the face of uncertainty,do companies choose to seek change or stability? Do they choose innovation or inhibit innovation? From the perspective of the enterprise itself,internal control can resist risks,and it is also a governance mechanism.How will it affect enterprise innovation? Furthermore,under the condition of uncertainty,what role does internal control play?In order to answer the above research questions,this paper first conducts a theoretical analysis,including real option theory,principal-agent theory,and information asymmetry theory,and analyzes the influence mechanism of economic policy uncertainty,internal control,and enterprise innovation and proposes research hypotheses.And put forward hypotheses based on the above analysis: On the one hand,fluctuations in economic policies will exacerbate corporate financing constraints and uncertainty in the operating environment.The waiting value of investment increases,at which time the enterprise will reduce or postpone investment.On the other hand,from a long-term strategic perspective,the initial investment in innovative activities can seize the competitive advantage,which prompts the company to achieve long-term development.Uncertainty increases the value of innovative growth options and contributes to innovation.Internal control will improve the quality of accounting information,ease financing constraints,help allocate resources,and promote corporate innovation.Internal control can resist the risks caused by uncertain economic policies,alleviate short-sighted management issues,and make enterprises pay more attention to long-term development.Therefore,internal control will play a regulatory role.In order to further verify the hypothesis,this paper conducted an empirical analysis.This article selects companies listed on Shanghai and Shenzhen A-shares from 2003 to 2017 as samples.The economic policy uncertainty(EPU)index came from a public website created by Baker et al.(2016).The measurement of innovation comes from the perspective of output,and the number of innovation patent applications and non-invention patent applications is used to further distinguish the types of innovation.The internal control is selected to be measured by DIB Control Index(DIB).This article first examines the effects of economic policy uncertainty and internal control on corporate innovation.Then,the interactive items of internal control and economic policy uncertainty are constructed to test the regulatory effect of internal control.In addition,the paper also grouped examine the nature of equity and property industry,further explore the effects of heterogeneity on the results.Finally,considering the endogenous problems,this paper uses the US economic policy uncertainty index as an instrument variable,and uses two-stage least squares(2SLS)to test the robustness of the results.Individual fixed effects are also used to alleviate the endogenous problems caused by omitted variables,and the measurements of uncertainty are transformed to conduct robustness tests.According to the regression results,the following research findings are found in this paper: First of all,unlike most research results,economic policy uncertainty will promote enterprise innovation,and it has a stronger role in promoting enterprise radical innovation.Secondly,internal control will also promote enterprise innovation,which has a stronger effect on breakthrough innovation.Thirdly,internal control will strengthen the role of economic policies in promoting radical innovation of enterprises.Furthermore,companies with different nature of equity and different growth have different results.This article may have the following contributions: The consequences and mechanisms of economic policy uncertainty on corporate innovation efficiency are discussed in this article,which enriched the existing literature.The conclusion that uncertainty will promote enterprise innovation provides new ideas and supplements for understanding the economic consequences of uncertainty.The addition of internal control can further expand the research on the relationship between economic policy uncertainty and enterprise innovation.This article further classifies innovation into breakthrough innovation and incremental innovation,distinguishes its impact on different innovation models,and expands the depth of research.