COPPEAD Graduate School of Business, UFRJ, Rio de Janeiro
State-Owned Enterprises (SOEs) are corporations created by governments that may combine different levels of state and private ownership and control. A burgeoning strand of public administration (PA) research suggests a growing corporatization trend in the public sector, driven by the political ideology of governments and the pursuit of financial sustainability in the provision of public goods and services. The resulting SOEs have multiple purposes, mixing a diverse set of financial objectives and public interest goals. Nevertheless, scant attention has been devoted to understanding whether governments’ political ideology shapes SOEs’ financial sustainability. We contend that the incumbent government’s political ideology is not only relevant to understand growing corporatization but is also associated with the SOEs’ tradeoffs between financial objectives and public interest goals, ultimately impacting their financial sustainability. The more right leaning the government, the greater the pressures guiding SOEs towards financial performance. Conversely, the more left leaning the government, the greater the pressures guiding SOEs to achieve public interest goals. We examine a 2018-2021 panel of 313 SOEs controlled by 27 different subnational governments in Brazil, a country with significant political ideology heterogeneity and that traditionally relies on PA corporatization through SOEs. The empirical results confirm the hypothesized association between political ideology of governments and financial sustainability. The findings hold in different econometric specifications, such as static and dynamic panel data regressions, with industry, state, or unit fixed effects, and with Coarsened Exact Matching.