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State-controlled companies and political risk: evidence from the 2014 Brazilian election

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  • Carvalho, Augusto
  • Guimaraes, Bernardo

Abstract

This paper examines the vulnerability of state-controlled companies to political risk using the 2014 Brazilian election and data on stock options. In her first term as Brazilian president, Ms. Dilma Rousseff took measures that were not aligned with the objective of maximizing profits of Petrobras, the Brazilian state-controlled oil company. She was reelected president in 2014. Results show that Petrobras would be worth around 62% (USD 45 billion) more if the opposition candidate had won the election. Using our estimated reelection probabilities and stock price data, we also find that the election of Ms. Rousseff had a negative impact on the value of several companies, but the effects on Petrobras and Banco do Brasil, the state-controlled bank, were particularly strong.

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  • Carvalho, Augusto & Guimaraes, Bernardo, 2017. "State-controlled companies and political risk: evidence from the 2014 Brazilian election," LSE Research Online Documents on Economics 86172, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:86172
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    Cited by:

    1. Carvalho, Augusto & Guimaraes, Bernardo, 2018. "State-controlled companies and political risk: Evidence from the 2014 Brazilian election," Journal of Public Economics, Elsevier, vol. 159(C), pages 66-78.
    2. Ding, Qian & Huang, Jianbai & Gao, Wang & Zhang, Hongwei, 2022. "Does political risk matter for gold market fluctuations? A structural VAR analysis," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Lorraine Eden & Stewart R. Miller & Sarfraz Khan & Robert J. Weiner & Dan Li, 2022. "The event study in international business research: Opportunities, challenges, and practical solutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(5), pages 803-817, July.
    4. Olayinka Oyekola & Meryem Duygun & Samuel Odewunmi & Temitope Fagbemi, 2023. "Political risk and external finance: Evidence from cross-country firm-level data," Discussion Papers 2312, University of Exeter, Department of Economics.
    5. Carlos Viana de Carvalho & Eduardo Zilberman & Ruy Ribeiro, "undated". "Sentiment, Electoral Uncertainty and Stock Returns," Textos para discussão 655, Department of Economics PUC-Rio (Brazil).

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    More about this item

    Keywords

    IMF; conditionalities; fiscal adjustment; political proximity; fiscal deficit;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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