The effect of (in)congruence between objective and perceived economic policy uncertainty on persistent innovation: evidence from China’s listed firms

Drawing upon uncertainty theory, this study investigates the effects of the (in)congruence between objective and perceived economic policy uncertainty on firms’ persistent innovation. Utilising a panel data from 2,773 listed Chinese firms between 2011 and 2020, we employ polynomial regression and response surface analysis to test our hypotheses. We find that incongruence between objective and perceived economic policy uncertainty positively impacts persistent innovation compared to congruence. Furthermore, low – low congruence between objective and perceived economic policy uncertainty realises superior persistent innovation compared to high – high congruence. Moreover, high – low incongruence between objective and perceived economic policy uncertainty improves persistent innovation more than low – high incongruence. Finally, technological intensity strengthens the positive effect of incongruence between objective and perceived uncertainty on persistent innovation. We discuss the study’s implications and call for future research to jointly consider both dimensions of economic policy uncertainty in exploring the drivers of innovation.