The Effect of Sovereign Wealth Funds on Corporations: Evidence of Cash Policies in Singapore
21 Pages Posted: 20 Aug 2015 Last revised: 3 Jun 2020
Date Written: June 1, 2020
This paper studies the monitoring role of sovereign wealth funds (SWFs). By using unique dataset from one of the largest SWF Temasek holdings, we find that SWF’s presence has a positive effect on cash holdings of portfolio companies. The effect is more pronounced for well-governed firms, indicating that Temasek increases corporate cash holdings through its active role in corporate governance. We further find supportive evidence that Temasek ownership affects cash holdings by hoarding excess cash and reducing capital expenditure, especially within firms with good governance. Temasek’s discerning effect on cash policies highlights the effective monitoring role of sovereign wealth funds.
Keywords: Cash Holdings, Sovereign Wealth Fund, Corporate Governance, Temasek Ownership, Corporate Policy
JEL Classification: G32, G34, G35
Suggested Citation: Suggested Citation