 Sovereign wealth fund investment and the return-to-risk performance of target firmsApril Knill, Bong Soo Lee and Nathan Mauck Journal of Financial Intermediation, 2012, vol. 21, issue 2, 315-340 Abstract: This paper investigates the relationship between sovereign wealth fund (SWF) investment and the return-to-risk performance of target firms. Specifically, we find that target firm raw returns decline following SWF investment. Though risk also declines following SWF investment, we find that SWF investment is associated with a reduction in the compensation of risk over the 5years following acquisition. Firm volatility decomposition suggests that idiosyncratic risk is what mainly drives these impacts toward decline. Employing a multinomial logit framework wherein combinations of target returns and risk movements are categorized, we see that, in cases of foreign investment, SWFs’ target firm performance most closely resembles that of other government-owned firms. The observed results are inconsistent with predictions of higher volatility and improved returns due to monitoring firm activities from the institutional investor literature. This suggests that SWFs may not provide some of the benefits that are offered by other institutional investors. Keywords: Sovereign wealth fund; Risk-return performance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:21:y:2012:i:2:p:315-340 DOI: 10.1016/j.jfi.2011.10.001 Access Statistics for this article Journal of Financial Intermediation is currently edited by Elu von Thadden More articles in Journal of Financial Intermediation from Elsevier |
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