Political Connections and Corporate Innovation Productivity

We find that political connections amplify corporate innovation productivity among public firms in the United States. Patent quantity and quality increase with the incidence and strength of political connections over the period 1999 to 2010. Results are robust to controlling for the endogenous choice of establishing political connections with the strongest effects for firms operating in the high-tech sector, under greater financial constraint, and in competitive environments. We demonstrate that politically connected firms outperform their peers with regard to federal grant awards, which are shown to improve innovation productivity. This innovation amplification channel illustrates an important mechanism linking political influence to corporate innovation productivity.