Buffing firm innovation by lobbying

Corporate lobbying positively influences firm innovation outcomes. Firms that engage more in lobbying have more patents, more patent citations, and greater patent value. We establish this causality using instrumental variables estimation. Corporate lobbying plays a role of persuasion and fosters firm innovation by transmitting valuable information to politicians, which enhances firms' external political environment. The impact of lobbying on innovation is more pronounced for firms with comparative advantages in the product market, financial health, ESG performance, and institutional support. These results contribute to a deeper understanding of the role of firms' information value in the political process and provide new insights into how lobbying buffs firm development.