Innovating under pressure: How geopolitical risk exposure drives energy innovation in firms

Abstract

This study examines the sample of A-share listed companies in China from 2007 to 2023 to explore the relationship between geopolitical risk (GPR) exposure and corporate energy innovation. Using the Geopolitical Risk (GPR) index, we measure the heterogeneous exposure of firms to geopolitical risks and analyze its impact on their energy innovation activities. The findings reveal a significant positive correlation between GPR exposure and energy innovation, indicating that firms facing higher levels of geopolitical risk are more likely to proactively engage in energy innovation as a strategic response. Mechanism analysis shows that firms with greater GPR exposure prioritize energy security and significantly increase R&D investments, thereby driving energy innovation. Additional analysis highlights that the impact of GPR exposure on energy innovation is more pronounced in non-state-owned enterprises and firms with higher operational risks. Notably, threat-related GPR exposure primarily increases the number of energy patent applications, whereas behavior-related GPR exposure not only boosts patent applications but also significantly enhances the number of patents granted. However, the study also finds that GPR exposure predominantly fosters “dirty” and “grey” energy innovation, with limited effects on “clean” energy innovation. These findings provide valuable insights into how escalating geopolitical risks shape firm behavior, and contribute to the growing literature on the intersection of geopolitical risk and corporate strategy.