How do sovereign wealth funds pay their portfolio companies’ executives? Evidence from Kuwait

Bader Alhashel and Sulaiman H. Albader

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Sovereign wealth funds (SWFs) are major players in the global markets. This paper examines the possible value SWFs bring to their domestic holdings by examining the impact of SWF ownership on firms’ executive compensation. Using data on Kuwaiti SWFs, we find that having an SWF as an ultimate owner enhances the pay–performance sensitivity (PPS) to levels matching those in more developed markets. This pay–performance enhancement increases as the rights of the SWF to manage and oversee the firm’s cash-flow increase. Moreover, having an SWF as the firm’s ultimate owner alleviates the adverse effects of the divergence in cash-flow and control rights. This evidence supports the notion that SWFs create value for their target investments through activism, monitoring and corporate governance enhancements.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-06
New Economics Papers: this item is included in nep-ara
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