Leaders affect business creation: Evidence from mayoral elections

Abstract

Research into leadership has consistently associated leaders with follower outcomes, such as motivation, satisfaction, and individual performance. However, only a few studies have looked at the impact of leadership on economic outcomes. In this study we test the effect of leaders’ political ideology (an identifiable leadership preference) on economic outcomes (private and public business creation). By using a combination of a quasi-electoral experiment (mixed-ideological election in which the margin of victory is close to zero) and a regression discontinuity methodology, we tested whether right-wing mayors would see more private business created (as aligned with party objectives) than left-wing mayors during their tenure. We also tested whether left-wing mayors would see more public organizations created (as being aligned with party objectives) than right-wing mayors during their tenure. Based on a sample of over 400,000 new firms in over 3,155 Brazilian municipalities, we confirmed our hypothesis for right-wing mayors only. Moreover, we found some evidence that the most likely mechanism used by right-wing leaders to produce this result is the development of actions related to business incubation (a place for the development of startups). The implications for future research and the study’s important theoretical and practical contributions are discussed.