Sovereign Wealth Fund Investments and Stock Prices: The Effect of Target Industry and Location

Samuele Murtinu and Vittoria Giada Scalera ()
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Vittoria Giada Scalera: University of Amsterdam Business School Politecnico di Milano, School of Management

Rivista Internazionale di Scienze Sociali, 2015, vol. 123, issue 4, 447-462

Abstract: We investigate the determinants of sovereign wealth fund (SWF) investments’ stock prices. We focus on the location of the investment (domestic versus cross-border) and the target industry (strategic versus non-strategic). To control for endogeneity, we use two identification strategies: OLS estimation with SWF-specific fixed effects to control for fund quality/experience, and instrumental variables estimation. Our results show that cross-border investments have an average higher increase in stock price than domestic investments, while investments in strategic industries show an higher drop in stock price than investments in non-strategic industries. We also find that the higher is the politicization of the fund, and the higher is the stock price drop. Our results are robust to controls for bilateral political relations between the SWFs’ and target country, fund type (SWFs versus Sovereign Pension Reserve Funds), fund opacity, SWFs’ equity stake, use of investment vehicles, target country’s market capitalization/GDP ratio, and time effects.

Keywords: Sovereign Wealth Funds; Institutional Investors; Cross-Border Acquisitions; Location Choice; Strategic Industry; Stock Price (search for similar items in EconPapers)
JEL-codes: E44 F21 F65 G11 G14 G15 G23 G34 (search for similar items in EconPapers)
Date: 2015
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