Taming Leviathan: Mitigating Political Interference in Sovereign Wealth Funds’ Public Equity Investments
52 Pages Posted: 16 Dec 2017 Last revised: 20 Dec 2017
Date Written: December 1, 2017
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: Suggested Citation