Understanding the decision-making process of sovereign wealth funds: The case of Temasek

J.Y. Gnabo, Malik Kerkour, C. Lecourt and Helene Raymond

International Economics, 2017, vol. 152, issue C, 91-106

Abstract: Sovereign wealth funds (SWFs) have been increasingly active over the past decade, with governments raising concern regarding their actual motives and the potential for cross-border interest in national strategic sectors. The aim of this paper is to contribute to the existing literature by improving our understanding of the decisions being taken by this new class of investors. The decision-making process informing such investments is complex in the sense that it involves several levels of decision that may potentially interact. In this study, we investigate the determinants of SWFs' foreign investments, while considering in a single model the sequence of choices involved in their decisions, specifically (i) the decision to invest abroad or not, (ii) the decision to invest in a listed versus unlisted firm, and (iii) the decision to take large versus small stakes. Using a nested logit approach on one of the largest SWFs, the Singaporean fund Temasek, over the period 1990–2010, we provide clear evidence of dependence in the three levels of decision making considered. In addition, we show that the probability of Temasek's cross-border investment increases with the excess of foreign exchange (FX) reserves, that the SWF tends to target unlisted firms when asymmetry of information is low between the target company and its home country, and that its involvement in large stakes depends on a firm's financial characteristics.

Keywords: Sovereign Wealth Funds; Nested Logit model; Foreign Investment (search for similar items in EconPapers)
JEL-codes: F30 G11 G15 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2110701716300956
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Understanding the decision-making process of sovereign wealth funds: The case of Temasek (2017)
Working Paper: Understanding the Decision Making Process of Sovereign Wealth Funds: The Case of Temasek (2016)
Working Paper: Understanding the Decision Making Process of Sovereign Wealth Funds: The Case of Temasek (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:152:y:2017:i:c:p:91-106

DOI: 10.1016/j.inteco.2017.06.003

Access Statistics for this article

International Economics is currently edited by Valerie Mignon and Marcelo Olarreaga

More articles in International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().