The Electoral Cycle of Government Venture Capital Investments

Abstract

We study how reverse and opportunistic electoral investments cycles affect the timing, characteristics and performance of governmental venture capital fund (GVC) investments. Consistently with the reverse electoral investment cycle, which characterizes private investment, GVCs on average decelerate their investment activity in election years. In high-stakes election years however, the political nature of GVC prevails and GVC investments significantly accelerate, consistently with the existence of an opportunistic electoral investment cycle. GVC investments exhibit style drift in high-stakes elections years, and companies invested in these years grow less after the investment and are more likely to result in an unsuccessful exit.

Keywords: Governmental Venture Capital; Elections; Reverse Electoral Investment Cycle; Opportunistic Electoral Investment Cycle; Style drift

JEL Classification: G24, D72, G23, G18