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Abstract This study uses text mining methods to extract information from the annual reports disclosed by Chinese A-share listed firms from 2007~2020, and measures the degree of economic policy uncertainty perceived by firms. It shows that the degree of firm-level perception of economic policy uncertainty is heterogeneous, even after removing industry- and region-level factors. Then, it explores the impact of firm-level perception of economic policy uncertainty on corporate innovation and finds that there is an inverted U-shaped relationship between them. It further finds that for those firms faced with more financing constraints, higher investment irreversibility, or higher risk aversion of management, the incentive effect of firm-level perception of economic policy uncertainty on R&D investment and patent application will be diminished. Finally, it also finds that firm-level perception of economic policy uncertainty has a more persistent and positive impact on innovation output.
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Received: 11 January 2022
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