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.