Taming Leviathan: Mitigating Political Interference in Sovereign Wealth Funds’ Public Equity Investments

52 Pages Posted: 16 Dec 2017 Last revised: 20 Dec 2017

See all articles by Bernardo Bortolotti

Bernardo Bortolotti

Bocconi University; University of Turin

Veljko Fotak

School of Management, University at Buffalo (SUNY); Sovereign Investment Lab, Baffi Carefin, Bocconi University

Giacomo Loss

Bocconi University - Baffi Carefin Centre

Date Written: December 1, 2017

Abstract

Extant research finds that announcement-period abnormal returns of sovereign wealth fund (SWF) equity investments in publicly traded firms are positive but lower than those of comparable private investments. We investigate the determinants of this “SWF discount” and mitigating mechanisms. We find that the discount is deeper for domestic investments and for SWFs from non-democratic countries, suggesting it is caused by the threat of political interference. While SWFs from non-democratic countries experience larger discounts, lower profitability, and lower valuation when signaling an active stance (buying large stakes, acquiring control, and investing directly), the opposite is true for SWFs from democratic countries.

Keywords: Sovereign Wealth Fund, State Ownership

JEL Classification: G32, G15, G38

Suggested Citation

Bortolotti, Bernardo and Fotak, Veljko and Loss, Giacomo, Taming Leviathan: Mitigating Political Interference in Sovereign Wealth Funds’ Public Equity Investments (December 1, 2017). BAFFI CAREFIN Centre Research Paper No. 2017-64, Available at SSRN: https://ssrn.com/abstract=3088430 or http://dx.doi.org/10.2139/ssrn.3088430

Bernardo Bortolotti (Contact Author)

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

University of Turin

Via Po 53
Torino, Turin - Piedmont 10100
Italy

Veljko Fotak

School of Management, University at Buffalo (SUNY) ( email )

School of Management, University at Buffalo
236 Jacobs Management Center
Buffalo, NY 14260
United States
+1 716-645-1541 (Phone)

Sovereign Investment Lab, Baffi Carefin, Bocconi University ( email )

Via Roentgen 1
Milan
Italy

Giacomo Loss

Bocconi University - Baffi Carefin Centre ( email )

Via Roentgen 1
Milan
Italy

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