The effect of sovereign wealth funds on the credit risk of their portfolio companies

Fabio Bertoni and Stefano Lugo

Journal of Corporate Finance, 2014, vol. 27, issue C, 21-35

Abstract: We study how sovereign wealth fund (SWF) investments affect the credit risk of target companies as measured by the change in their credit default swap (CDS) spreads around the investment announcement. We find that the CDS spread of target companies decreases, on average, following an SWF investment. The reduction in the CDS spread is higher when the SWF is established by a politically stable non-democratic country that has a neutral political relationship with the host country of the target company. Our results suggest that creditors expect SWFs to protect target companies from bankruptcy when it is in the interest of their home country to build political goodwill in the host country of the company.

Keywords: Sovereign wealth fund; Credit risk; Credit default swap; Political relations (search for similar items in EconPapers)
JEL-codes: F34 G15 G28 G32 G33 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Working Paper: The Effect of Sovereign Wealth Funds on the Credit Risk of their Portfolio Companies (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:27:y:2014:i:c:p:21-35

DOI: 10.1016/j.jcorpfin.2014.04.004

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