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The effect of sovereign wealth funds on corporations: Evidence of cash policies in Singapore

Author

Listed:
  • Liu, Chenxi
  • Yap, Nelson
  • Yin, Chen
  • Zhou, Sili

Abstract

This paper studies the monitoring role of sovereign wealth funds (SWFs). By using unique dataset from one of the largest SWF: Temasek holdings, we find that SWF’s presence has a positive effect on cash holdings of portfolio companies. The effect is more pronounced for well-governed firms, indicating that Temasek increases corporate cash holdings through its active role in corporate governance. We further find supportive evidence that Temasek ownership affects cash holdings by hoarding excess cash and reducing capital expenditure, especially within firms with good governance. Temasek’s discerning effect on cash policies highlights the effective monitoring role of sovereign wealth funds.

Suggested Citation

  • Liu, Chenxi & Yap, Nelson & Yin, Chen & Zhou, Sili, 2021. "The effect of sovereign wealth funds on corporations: Evidence of cash policies in Singapore," Research in International Business and Finance, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:riibaf:v:56:y:2021:i:c:s0275531920309624
    DOI: 10.1016/j.ribaf.2020.101354
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    Cited by:

    1. Gangi, Francesco & Mustilli, Mario & Varrone, Nicola & Graziano, Domenico, 2023. "Target firms’ characteristics and the effects of sovereign wealth funds’ investments: Does cultural context of SWFs matter?," Research in International Business and Finance, Elsevier, vol. 65(C).

    More about this item

    Keywords

    Cash holdings; Sovereign wealth fund; Corporate governance; Temasek ownership; Corporate policy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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