#  Political Economy Workshop (Gov 3007) 

 



####  calendar\_today Date and Time 

 **March 2, 2015** 

 12:00PM - 02:00PM EST 

####  pin\_drop Location 

 **K354**  



 

 



 

First, Rodrigo Bandeira-de-Mello will present his paper "Location and Timing of Corporate Strategic Investments: The Effect of Local-National Government Political Alignment in Brazil," with Renato Oliveira as discussant.Second, Raphael Bruce will present his paper "Mandatory Voting and Political Interest in Brazil," with Thomas Fujiwara as discussant.Abstract for "Mandatory Voting and Political Interest in Brazil"This paper presents empirical evidence on the effects of mandatory voting laws on political interest and media consumption. In Brazil, the law determines that every literate citizen over the age of eighteen at the day of the election is subject to an abstention cost. This provides us a natural experiment which allows us to identify the causal effect of mandatory voting on outcomes related to the level of political interest and information acquisition. Using national survey data on the consumption of media we find that the mandatory voting law has a significant positive impact on the interest on obtaining news about the government, and that this increase is driven mostly by the interest in obtaining information on local politics. We also find that the compulsory voting law shifts voters opinion about the incumbent party at the federal government towards a more favorable one. General media consumption is not affected but, for specific media outlets owned by the federal government, a causal impact is found.Extended Abstract for "Location and Timing of Corporate Strategic Investments: The Effect of Local-National Government Political Alignment in Brazil"Existing theories in Management that informs where and when to make strategic investments marginally considers the political dimensions of the business environment. Research on nonmarket strategies has emphasized the active role of firms in shaping the political landscape to achieve competitive advantage by using political strategies such as lobbying, electoral donations, or personal service. However, econometric results about how firms respond to the political environment through corporate strategic investments are scant.Corporate strategic investments are of fundamental importance for competitive advantage as they are responsible for implementing strategic projects. The nature of such investments implies difficult choices for the corporation as it is entails risk, difficult-to-reverse decisions loaded with sunk costs, as well as represents considerable sums of money. Usual models that explain strategic investments focus on the economic and market environment opportunities as well as on the value of rare, and difficult-to-imitate firm resources and capabilities.While I acknowledge the importance of economic conditions in defining corporate strategic investments, I argue that they are not sufficient to fully explain this corporate decision. I advance in this paper a complementary explanation based on reactions of firms to the political environment. Particularly, I posit that the political alignment between local and national layers of government affects the timing and location of corporate political investments.The intuition behind this hypothesis is that managers anticipate federal support to aligned mayors. Discretionary federal projects are important to help building the local missing infrastructure. The local-national government alignment also help firms reduce information asymmetry and transaction costs. Strategic investments are often asset specific in the sense that firms and local governments need safeguards to guarantee that each party will fulfill their promises. Firms need local support from the local government for issuing licenses and giving subsidies that are helpful to build the local supply chain. By investing in an aligned municipality, firms reduce information asymmetry about future developments in economy. Further, as local aligned governments are more accountable to push forward national growth in order to help the national development agenda they are less likely to default of previous promises.The mechanism working through this channel is based on firm resource value, a tenet concept in Resource-Based Theory (RBT) of competitive advantage. According to RBT, firms deploying valuable, rare, and difficult-to-imitate resources and capabilities in their strategies are more likely to sustain competitive advantage. Resource value is determined externally as a function of their services to implement strategies that increases customers’ willingness to pay and/or make the firm more cost-efficient. Some usual resource services are makes possible low-cost manufacturing, supply chain management capabilities, knowledge transfer capabilities, market development and distribution capabilities.However, in order to firm resources fully perform their services, there is a taken-for-granted assumption that market institutions are fairly efficient, information asymmetry is under control, and that market intermediaries provide reliable services reducing institutional voids and transaction costs. I propose that under conditions of weakly developed market institutions, the alignment between local and national governments provides institutional support for the valuable resources to performance their services and, hence, affect the decision to pursue strategic investments.I test this idea in the context of Brazil. I use mayoral elections to test whether municipalities where the party of the newly elected mayor attracts more strategic investments when it supports the federal government in congress than municipalities where the newly elected mayor belongs to the opposition party group in Federal Congress. I exploit discontinuities in mayoral elections that makes possible to identify "as if" randomized treatment and control groups, by comparing municipalities where federal government allies barely win the race against a federal government opposition party.The outcome of interest is measured by the sum of loans from the state-owned national development bank (BNDES) to the firms investing in respective municipalities. BNDES loans are a good proxy for corporate strategic investments in Brazil. The BNDES is virtually the only source of long-term credit in the country. Capital markets are not so well developed and most firms consider that market funding a more expensive option, either for debt or equity. BNDES lends money at subsidized rates, approximately the half of the market price, so companies operating in Brazil have strong incentives to apply for its loans at the maximum limit.

 

 



 

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