Political Investment Cycles of State-Owned Enterprises

Using a large panel of more than 140,000 state-owned enterprises (SOEs), this study examines SOEs' investment behavior surrounding 82 national elections in 25 European countries between 2001 and 2015. We find that SOEs increase their corporate investment by about 29% of the sample average during national election years. This effect is more pronounced in fixed timing and closely contested elections. The effect is also stronger in countries with low institutional quality, more centralized political systems, and state-controlled banking systems. In contrast, we find the matched non-SOEs significantly decrease their corporate investment during national election years.