Nardone Speaker Series: Rodrigo Bandeira De Mello


Speaker: Professor Rodrigo Bandeira De Mello
Location: 223A Hayden Hall

Location and Timing of Corporate Strategic Investments: The Effect of Local-National Government Political Alignment in Brazil

Rodrigo BANDEIRA DE MELLO

Management Department, FGV Sao Paulo Business School

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. By investing in an aligned municipality, firms access complementary resources needed to perform their local operations, including financing from the state-owned bank. I test this idea using firm level data on loans granted by the Brazilian National Development Bank (BNDES) from 2005 and 2012. I exploit discontinuities in mayoral elections to find that 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 also find that this effect follows the electoral cycle, and that the greater the complexity of the project being developed, the more likely the firm will invest in an aligned municipality.