Sovereign Investing and Corporate Governance: Evidence and Policy

Paul Rose

Ohio State University - Moritz College of Law

February 18, 2013

Ohio State Public Law Working Paper No. 192

Discussions of corporate governance often focus solely on the attractiveness of firms to investors, but it is also true that firms seek out preferred investors. What, then, are the characteristics of an attractive investor? With nearly $6 trillion in assets, sovereign wealth funds (SWFs) are increasingly important players in equity markets in the United States and abroad, and possess characteristics that firms prize: deep pockets, long-term (and for some, theoretically infinite) investment horizons, and potential network benefits that many other shareholders cannot offer. However, despite their economic power, their reach, and their general desirability as investors, SWFs are almost entirely disengaged from corporate governance matters in U.S. firms. Indeed, with the exception of Norway’s Government Pension Fund-Global, SWFs are notable primarily just for their passivity as shareholders.

Given the domestic and external political and regulatory factors that discourage SWF engagement in corporate governance in the United States, how can SWFs provide appropriate stewardship over their equity investments? The article answers this question by describing how SWFs and regulators can create the crucial “space” necessary for SWF engagement in corporate governance. The analysis proceeds in three substantive sections. Part I lays out a definition of SWFs and describes SWF investment patterns. Part II reviews empirical evidence on SWF investment behavior and the effects that the investment has on firm values, and then examines evidence on SWF activities in corporate governance. Part III discusses the key factors that limit SWF involvement in corporate governance activities. Part IV describes how, given these limitations, SWFs may engage in governance without triggering regulatory reprisals, and how regulators can encourage SWF investment and engagement.

Number of Pages in PDF File: 52

Keywords: corporate governance, sovereign wealth, CFIUS

JEL Classification: K2, K20, K29, K22, K33

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Date posted: February 20, 2013  

Suggested Citation

Rose, Paul, Sovereign Investing and Corporate Governance: Evidence and Policy (February 18, 2013). Ohio State Public Law Working Paper No. 192. Available at SSRN: http://ssrn.com/abstract=2220222 or http://dx.doi.org/10.2139/ssrn.2220222

Contact Information

Paul Rose (Contact Author)
Ohio State University - Moritz College of Law ( email )
55 West 12th Avenue
Columbus, OH 43210
United States
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