Corporate innovation in turbulent times: insights from textual analysis

Purpose This study investigates the impact of economic policy uncertainty (EPU) on corporate innovation culture using a novel text-based measure derived from earnings call transcripts. Unlike traditional metrics that focus on R&D and patent counts, this approach captures the broader cultural emphasis on innovation within firms during uncertain economic times. Design/methodology/approach The study analyzes a comprehensive dataset of over 50,000 observations from 2001 to 2018. Multiple econometric methodologies – including propensity score matching, entropy balancing and instrumental-variable analysis – are applied to enhance robustness and address potential endogeneity. The model incorporates firm-specific control variables and a time trend to capture shifts in innovation culture over time. Findings Results indicate a significant, negative relationship between EPU and corporate innovation culture, with a one standard deviation increase in EPU leading to a 4.8% decline in innovation culture. This effect persists across robustness checks, suggesting firms are cautious in innovation during uncertain periods. Although some adaptation occurs over time, the overall negative impact remains substantial, unaffected by firm characteristics such as profitability and leverage. Originality/value This research provides new insights by utilizing a text-based measure to assess the cultural dimensions of corporate innovation. The study contributes to literature on policy uncertainty by demonstrating its pervasive impact on innovation culture and offers valuable implications for managers and policymakers aiming to foster innovation resilience in turbulent environments.