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The long-term impact of sovereign wealth fund investments

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  • Park, Raphael Jonghyeon
  • Xu, Simon
  • In, Francis
  • Ji, Philip Inyeob

Abstract

In this study, we examine the long-term impact of sovereign wealth fund (SWF) investments on target firms' value, return volatility, and crash risk. We find that SWF investments generally underperform stock markets in the long run. Furthermore, the effect of SWF ownership critically depends on the level of investor protection in recipient countries. We show that domestic SWFs impart a stabilizing effect on the stock price of target firms in countries with low investor protection, but the effect is weaker for foreign SWFs. Moreover, SWF investments during the non-crisis period increase the crash risk of target firms, but the effect reverses during the crisis period.

Suggested Citation

  • Park, Raphael Jonghyeon & Xu, Simon & In, Francis & Ji, Philip Inyeob, 2019. "The long-term impact of sovereign wealth fund investments," Journal of Financial Markets, Elsevier, vol. 45(C), pages 115-138.
    • Handle: RePEc:eee:finmar:v:45:y:2019:i:c:p:115-138
    DOI: 10.1016/j.finmar.2018.08.004
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    Cited by:

    1. Garg, Roshni & Shukla, Abha, 2024. "Sovereign wealth funds as anchor investors in IPOs: Evidence from India," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).
    2. William L. Megginson & Asif I. Malik & Xin Yue Zhou, 2023. "Sovereign wealth funds in the post-pandemic era," Journal of International Business Policy, Palgrave Macmillan, vol. 6(3), pages 253-275, September.
    3. Augustynczik, Andrey Lessa Derci & Gutsch, Martin & Basile, Marco & Suckow, Felicitas & Lasch, Petra & Yousefpour, Rasoul & Hanewinkel, Marc, 2020. "Socially optimal forest management and biodiversity conservation in temperate forests under climate change," Ecological Economics, Elsevier, vol. 169(C).
    4. Ghouma, Hatem H. & Ouni, Zeineb, 2022. "SWF investments and debt maturity of target firms: An international evidence," Finance Research Letters, Elsevier, vol. 46(PA).

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    More about this item

    Keywords

    Sovereign wealth fund; Firm value; Crash risk; Event study;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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