Terrorism, Innovation and Venture Capital

Purpose This paper aims to examine the relationship between terrorism and innovation and the moderating role of venture capital. Design/methodology/approach The paper has used panel data from 140 countries covering the period of 2007–2016 and has analysed the data by using generalised method of moments instrumental variables (GMM-IV) estimation method to control for unobserved endogeneity among the variables. Findings The authors find that terrorism has negative impact on innovation. Interesting results emerge when we separated the developed countries from others. The results show that the impact of terrorism on innovation is lower in developed countries. This is due to the fact that strong institutional settings in developed countries make the investors confident by providing support and incentives. Better institutional settings in developed countries also help to reduce uncertainty, which maximise innovation and minimise terrorism risk. The authors also find that venture capital positively moderates the terrorism and innovation relationship. This implies that by providing sufficient fund for technological development, venture capital may help to reduce terrorism risk. Practical implications These results may guide the policy makers to find a business solution instead of lengthy political solution to mitigate terrorism risk in emerging countries. Overall, this paper will provide the basis for improving the counter-terrorism approaches from an innovation perspective. Originality/value The paper has used terrorism and venture capital data from 140 countries and finds interesting results that may help the policy makers to reduce the effect and intensity of terrorism in emerging countries