Political influence on the investment of state-owned enterprises

How does government influence over state-owned enterprises affect the latter investment decisions? We argue that governments use their influence over the SOEs to build or strengthen a political coalition that supports the governments’ agenda. We use a sample of 96,379 observations from publicly listed firms and SOEs from 41 countries and argue that the greater the potential conflict between principal-principal, the greater the investments by SOEs. Government influence over SOEs can lead to inefficient decisions, favoring investments in politically disputed regions over economically attractive ones. Our findings have theoretical implications for the literature on minority shareholders’ rights and government policy.