Partisanship, optimism, and firm innovation

Abstract

Political partisanship significantly shapes firm executives’ economic outlook. We find that firms, whose managers share political alignment with the US president, achieve superior innovation outcomes, including higher patent counts, increased patent citations, and greater patent value. We establish a causal relationship through a difference-in-differences approach, focusing on periods around US presidential elections. This effect is more pronounced in firms with overconfident CEOs and during periods of heightened policy uncertainty, suggesting that partisan optimism stimulates innovation incentives. Firms led by partisan-aligned managers generate patents with greater originality, generality, and an exploratory style.