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http://ssrn.com/abstract=1292407
 
 

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Friends or Foes? Target Selection Decisions of Sovereign Wealth Funds and Their Consequences


Jason D. Kotter


Pennsylvania State University - Smeal College of Business

Ugur Lel


Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law

May 27, 2010

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
This paper examines investment strategies of Sovereign Wealth Funds (SWFs), their effect on target firm valuation, and how both of these are related to SWF transparency. We find that SWFs prefer large and poorly performing firms facing financial difficulties. Their investments have a positive effect on target firms’ stock prices around the announcement date but no substantial effect on firm performance and governance in the long-run. We also find that transparent SWFs are more likely to invest in financially constrained firms and have a greater impact on target firm value than opaque SWFs. Overall, SWFs are similar to passive institutional investors in their preference for target characteristics and in their effect on target performance, and SWF transparency influences SWFs’ investment activities and their impact on target firm value.

Number of Pages in PDF File: 71

Keywords: International finance, sovereign wealth fund, cross-border investment, market efficiency, transparency

JEL Classification: G14, G15, G34, G38

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Date posted: August 30, 2008 ; Last revised: October 2, 2012

Suggested Citation

Kotter, Jason D. and Lel, Ugur, Friends or Foes? Target Selection Decisions of Sovereign Wealth Funds and Their Consequences (May 27, 2010). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1292407 or http://dx.doi.org/10.2139/ssrn.1292407

Contact Information

Jason D. Kotter
Pennsylvania State University - Smeal College of Business ( email )
University Park, PA 16802
United States
Ugur Lel (Contact Author)
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )
1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States
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