Politics, State Ownership, and Corporate Investments
Review of Financial Studies, Forthcoming
80 Pages Posted: 28 Mar 2014 Last revised: 28 Sep 2019
Date Written: January 31, 2015
We document a political cycle in the investment decisions of state-owned enterprises (SOEs) by using the constitutionally mandated election schedule in India as a source of exogenous variation in politicians' incentive to cater to voters. Using a project-level investment database, we find that SOEs announce more capital expenditure projects in election years, especially in infrastructure, and in districts with close elections, high-ranking politicians, and left-wing incumbents. SOE projects in election years have negative announcement returns suggesting a loss in shareholder value. These patterns are not seen in nongovernment firms or in off-election years.
Keywords: Investment, Political Interference, State-Owned Enterprises, Elections, Political Economy, SOE, Corporate Investments, Politics and Finance, Political Influence
JEL Classification: G31, G38, D72, D73, P16
Suggested Citation: Suggested Citation