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

Bernardo Bortolotti, Veljko Fotak and Giacomo Loss

No 1764, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

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 (search for similar items in EconPapers)
JEL-codes: G15 G32 G38 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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