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This study investigates the impact of US political sanctions on innovation and fraudulent activities within Iranian businesses affected by sanctions. Additionally, it explores the moderating role of intellectual capital in the relationship between sanctions and innovation/fraud.

The study employs a difference-in-differences methodology to compare Iranian companies before and after sanctions. It analyzes 23 sanctioned companies from 2013 to 2023, matched with non-sanctioned counterparts.

The empirical findings reveal a modest negative association between sanctions and innovation, with no discernible connection between sanctions and fraudulent practices. Notably, the study uncovers a significant divergence in companies’ reactions to sanctions, contingent upon their intellectual capital. Companies with substantial intellectual capital witness notable improvements in innovation endeavors, while those lacking robust intellectual capital exhibit an uptick in fraudulent activities in response to sanctions. These findings are robust across various sensitivity analyses, underlining their reliability and validity.

The study underscores the pivotal role of intellectual capital in mitigating the adverse effects of sanctions on innovation. Consequently, policymakers and practitioners should prioritize investments in intellectual capital development, acknowledging its significance as a fundamental driver of organizational resilience and competitive advantage.

The findings contribute to the literature by revealing the nuanced effects of sanctions on innovation and fraudulent practices while highlighting the crucial role of intellectual capital. This enriches understanding of regulatory compliance, corporate behavior and the importance of intellectual capital in organizational resilience and ethical conduct.