Election Cycles and Organizations: How Politics Shapes the Performance of State-owned Enterprises over Time

Abstract

This study develops a dynamic perspective on how elected state officials’ political incentives shape the behavior and performance of organizations, particularly state-owned enterprises (SOEs). Drawing on theoretical views about the relationship between politicians and firms, I argue that state officials seeking votes manipulate SOEs to boost employment before elections. As a result, SOEs exhibit both higher employment levels and lower financial performance in election years. The positive relationship between elections and SOE employment, however, is not uniform across firms and geographic communities: it is likely to be stronger in economically disadvantaged communities and weaker for SOEs with private investors. Data from Brazil’s water sector—an industry managing a crucial societal resource—support these predictions. These results shed light on the mechanisms linking officials’ political incentives and SOE behavior and show that SOE performance is politically contingent and thus varies systematically over time. More broadly, this study reveals how firms’ responses to political pressures depend on both organizational and community attributes and highlights how the interplay of election cycles, organizations, and communities shapes the performance of organizations in state capitalism.

Political elections and corporate investment: International evidence

“…Recent works show that firms can time investment decisions along the political cycle to pursue political objectives. For instance, stateowned firms have been shown to increase investment and employment during election times as a means to construct voter support (Alok & Ayyagari, 2020;Inoue, 2020). Going beyond state-owned firms, there is evidence that firms with social ties with politics increase employment during an election to support incumbent politicians (Bertrand et al 2018).…”

What Does Political Context Tell Us? Understanding the Persistence of Ideological Imprints in the Case of Turkish Humor Magazines

“…Political changes characterized by regular elections are highly significant elements of the political landscape in many countries. It has been shown that elections influence organizational outcomes in settings marked with politically embedded organizations linked to state actors (Inoue, 2019), and it is indeed important for managers to deal with the political environment to enhance their firms' market performance. Moreover, studies have concluded that decoupling market and political environments may be problematic in some contexts in which they are closely interrelated (Guo et al, 2017;Oliver & Holzinger, 2008).…”

“…This study furthers the nascent research on political ideology by proposing a dynamic political perspective on firmlevel outcomes by looking at humor magazines. In so doing, we have sought to develop the incomplete view of how firm behavior is impacted by political dynamics during political cycles (Inoue, 2019). While our work is revelatory, it is focused on achieving a deep understanding of the dynamics at play in a given context (Eisenhardt, 1989) and is therefore particularly suited to examining phenomena that have received limited scholarly attention, such as, in our case, the influence of political context on ideological imprinting.…”

“…Although most studies have taken founding as the key sensitive period for organizations in the maintenance and reproduction of imprints (Carroll & Hannan, 2004;, later sensitive periods such as new market entries, the process of becoming a public company, merging with another firm, periods of crisis, and shifts in senior executive positions are also times when imprinting can occur (Marquis & Tilcsik, 2013, p. 223). The imprinting literature, while highlighting the links between resource and macro-economic environments (Marquis & Huang, 2010;Tilcsik, 2014), has offered limited insight on the impact of political environments on firms' economic performances (Inoue, 2019).…”

“…In this regard, elections and associated political changes are potentially pivotal moments that may highlight a critical transition from one governmental ideology to another. Scholars have recently begun to delve into the implications of election cycles (Inoue, 2019;Julio & Yook, 2012) and organizational implications of national political conventions. Elections are shown to influence organizational outcomes particularly for politically embedded organizations connected to the state and its actors (Inoue, 2019, p. 26).…”