State-owned enterprises as countercyclical instruments: Quasi-experimental evidence from the infrastructure sector

This paper examines the effects of a negative macroeconomic shock on the financial performance of state-owned enterprises (SOEs) in infrastructure. The main aim of the paper is to explore whether SOEs serve as countercyclical instruments or whether they end up generating fiscal costs during a downturn, perhaps amplifying negative shocks. The paper introduces a new measure of fiscal injections that includes subsidies, equityrecapitalizations, and loans from the government, other SOEs, or state-owned financial institutions. The empirical setup uses a quasi-experimental setting that exploits the differential effects of a drastic fall in oil prices (in 2014–15) for SOEs in countries that experience a negative aggregate demand drop as a consequence of this shock versus similar firms in countries that do not suffer a downturn from the shock. The results—based on a balanced sample using coarsened exact matching and a differences-in-differences estimation—show that SOEs in treatment countries received increases in fiscal injections as a percent of average assets of 3.5 percent the year after the shock, equivalent to a significant recapitalization. These fiscal injectionstake the form of equity injections and loans from the government and state-owned financial enterprises. The results also show that capital expenditure as a percent of average assets in fully owned infrastructure SOEs decreased by 3.5 percentage points the year after the negative shock, equivalent to a 40 percent decline relative to its average level. In sum, this paper presents evidence that shows that SOEs do not serve as countercyclical tools and, in fact, may amplify negative shocks by requiring fiscal injections for SOEs while also lowering their capital expenditures.