Ancestor's Legacy? The Effect of Folklore on Corporate Innovation

ABSTRACT

This paper investigates how ancestral narratives shape contemporary corporate innovation. Drawing on pre‐industrial folklore from 20 countries, we exploit within‐country variation in local cultural motifs to examine their impact on firm innovation. We focus on two types of motifs: narratives depicting heroes’ successful challenges relative to challenge‐losing ones and narratives containing supernatural entities. We show that firms located in societies whose local folklore prevalently features heroes overcoming challenges exhibit greater R&D investment and higher patent‐based innovation efficiency, with directionally similar but statistically insignificant evidence for citation‐based efficiency. In contrast, firms in societies where folklore emphasizes supernatural entities display lower R&D investment and lower innovation efficiency. Cross‐sectional analyses indicate that these effects are moderated by regional economic openness and national patent protection and are more pronounced in highly innovative industries and among firms with higher levels of corporate transparency. Our findings are robust after controlling for regional factors or alleviating large country sample bias. The relationship between folklore and R&D investment remains directionally consistent, albeit with lower statistical significance, after instrumenting the folklore measure with historical immigration patterns to the United States. We further show that the net prevalence of challenge‐encouraging motifs is associated with more radical innovation strategies and greater corporate risk‐taking, while supernatural motifs exhibit the opposite pattern. Overall, our findings support the view that folklore persists across generations and meaningfully influences firms’ contemporary economic decisions and outcomes.