Politics, State Ownership, and Corporate Investments

Indian School of Business WP

Review of Financial Studies, Forthcoming

80 Pages Posted: 28 Mar 2014 Last revised: 28 Sep 2019

See all articles by Shashwat Alok

Shashwat Alok

Indian School of Business (ISB), Hyderabad

Meghana Ayyagari

George Washington University - School of Business; University of Maryland - Robert H. Smith School of Business

Date Written: January 31, 2015

Abstract

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

Alok, Shashwat and Ayyagari, Meghana and Ayyagari, Meghana, Politics, State Ownership, and Corporate Investments (January 31, 2015). Indian School of Business WP, Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2416960 or http://dx.doi.org/10.2139/ssrn.2416960

Shashwat Alok

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India
914023187188 (Phone)

Meghana Ayyagari (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
395
Abstract Views
2,428
rank
97,573
PlumX Metrics