The effect of political elections at home on the internationalization of state-owned multinationals from emerging countries

Research Summary: The literature on the internationalization of state-owned enterprises in emerging countries usually implicitly assumes continuity in the provision of key resources by home country governments. This assumption, however, does not necessarily hold in the presence of political elections in democratic emerging countries. Drawing from the resource dependence theory and the literatures on election-induced uncertainty and investment irreversibility, we study how political elections in emerging countries affect the internationalization of multinationals with state indirect ownership. Using a sample of 89 Brazilian multinationals from 2000 to 2012, we find that these state-owned multinationals are less likely to internationalize during elections than multinationals with fully private ownership. When they internationalize, they choose investments that provide them with more flexibility than those chosen by their private counterparts.Managerial Summary: Political elections in democratic emerging countries regularly create considerable policy uncertainty and opportunism in policymaking. This affects the provision of government resources that state-owned enterprises (SOEs) depend on for their internationalization strategy. Our results show that Brazilian multinationals with state indirect ownership are less likely to internationalize in an election year, and when they do, they implement more flexible strategies than fully private multinationals. These findings suggest that SOEs need to include the timing of political elections in their long-term international strategic planning. Our study also stresses the pros and cons of the SOE-government relationship. Whereas the link to the state can offer SOEs a way to access valuable government resources, it may constrain their managerial autonomy in international strategy decisions during political elections.