The Financial Impact of Political Corruption on Corporate Innovation and Trademark Valuation
Xinyu Zou
Co-Presenters: Individual Presentation
College: College of Business and Public Management
Major: Accounting
Faculty Research Mentor: Huaibing Yu
Abstract:
Innovation is a key driver of corporate growth and long-term financial performance, yet the influence of political corruption on firm innovation remains an area of ongoing debate. This study examines the relationship between political corruption, corporate innovation, and financial valuation, with a specific focus on trademark activity as an indicator of innovation output. Using data on U.S.-listed firms from 1990 to 2010, we measure corruption at the subnational level using the number of public official corruption convictions in a firm's headquarters state. Innovation is assessed through trademark filings and citation-adjusted trademarks, while financial performance is examined through market valuation metrics such as Tobin’s Q and return on assets (ROA).Our findings indicate a significant negative relationship between corruption levels and firm innovation output. Firms headquartered in regions with higher corruption convictions exhibit lower trademark activity and reduced incentives to invest in research and development (R&D), suggesting that corruption distorts firms’ financial decision-making processes. Additionally, the results challenge the "grease the wheels" hypothesis, which posits that corruption can enhance efficiency by bypassing bureaucratic barriers. Instead, we find that corruption weakens firms' ability to generate intangible asset value, negatively impacting their financial standing and investor confidence. This effect is particularly pronounced in firms involved in government procurement, where corruption may increase short-term financial gains but discourages long-term innovation investment.These findings contribute to the broader discussion on the financial consequences of corruption, highlighting its role in undermining corporate innovation and intangible asset valuation. The study underscores the need for stronger institutional frameworks to mitigate corruption’s financial and economic costs. Future research could further explore the impact of corruption on firm financing decisions, investment risk, and cost of capital.