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

Carvalho, Augusto and Guimaraes, Bernardo (2017) State-controlled companies and political risk: evidence from the 2014 Brazilian election. CFM discussion paper series (CFM-DP2017-02). Centre For Macroeconomics, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2017 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 12 Dec 2017 11:22
Last Modified: 30 Jan 2019 12:36
URI: http://eprints.lse.ac.uk/id/eprint/86172

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