Sovereign Wealth Funds: Investment Choices and Implications Around the World

Abstract

This study focuses on a major global phenomenon: the rise of sovereign wealth funds (SWFs). Using data from 2002 through 2007 that includes SWF holdings in 8,000 firms in 58 countries, we find that firms with higher ownership by SWFs have higher firm valuations and better operating performance. The results are not driven by any particular SWF. Evidence of SWF impact on firms is also obtained from tests of changes in operating performance and value, before and after large purchases by SWFs. Additionally, we find evidence that after a large investment by SWFs, firms have better monitoring, expand their international operations, and are able to raise more capital as a consequence of the SWF investment.

Keywords: Sovereign Wealth Funds, International Capital Markets, Investment Choices, Institutional Investors

JEL Classification: G15, G20, G23, G28, G32