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Local Gambling Preferences and Corporate Innovative Success

Published online by Cambridge University Press:  29 April 2014

Yangyang Chen ,
Edward J. Podolski ,
S. Ghon Rhee  and
Madhu Veeraraghavan
Yangyang Chen
Affiliation:
[email protected], Department of Banking and Finance, Monash University, W1016, Building 11, Monash University Clayton Campus, VIC 3800, Australia
Edward J. Podolski
Affiliation:
[email protected], Department of Finance, La Trobe University, Martin Building 470, La Trobe University Melbourne Campus, VIC 3086, Australia
S. Ghon Rhee
Affiliation:
[email protected], Shidler College of Business, University of Hawaii, 2404 Maile Way, Honolulu, HI 96822 and Monash University
Madhu Veeraraghavan
Affiliation:
[email protected], Finance Area, T. A. Pai Management Institute, PB No 9, Manipal, Karnataka 576104, India.
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Abstract

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This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 1 , February 2014 , pp. 77 - 106
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

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