Firm-level political risk and intellectual capital investment: Does managerial ability matter?

Abstract

This paper examines the impacts of firm-level political risks on intellectual capital investment and how managerial ability adjusts this correlation. Using a broad sample of U.S firms from 2002 to 2021, our results show that firms with higher political risks reduce their investment in intellectual capital. This impact is more prominent for firms with high financial distress, external financial dependence, and lower institutional ownership. Further, we find supportive evidence that managerial ability helps prevents a considerable proportion (around 20%–40%) of the destructive impact of political risk on intellectual capital investment, which is also driven by firm-specific characteristics.

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