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The Impact of Foreign Government Investments: Sovereign Wealth Fund Investments in the United States

Institutional Investors in Global Capital Markets

ISBN: 978-1-78052-242-5, eISBN: 978-1-78052-243-2

ISSN: 1569-3767

Publication date: 27 September 2011

Abstract

Purpose – Study the role of sovereign wealth funds (SWFs) as an example of foreign and politically connected large shareholders, and their impact on firm value.

Methodology/approach – Use a sample of SWF large U.S. investments where SWFs intend to actively engage with management to analyze not only whether but also why SWF investments outperform the market in both the short- and long term from the perspective of internationalization, political connections, and corporate governance.

Findings – Foreign and politically connected large investors, like SWFs, improve firm value through the provision of SWF domestic market access and government-related contracts. In the short run, the market welcomes SWF investments in expectation of potential monitoring and internationalization benefits. In the long run, the target firms’ degree of internationalization and Tobin's q increase substantially after SWF investments. The increase in q is directly related to the number of government-related contracts granted by SWF countries.

Social implications – SWF investment benefits appear to outweigh the costs for firm value and shareholders. The results point to the benefits of large and foreign investors for shareholders.

Originality/value of paper – This is the first work to provide evidence on how foreign government-related shareholders can affect firm value.

Keywords

Citation

Sojli, E. and Wah Tham, W. (2011), "The Impact of Foreign Government Investments: Sovereign Wealth Fund Investments in the United States", Boubakri, N. and Cosset, J.-C. (Ed.) Institutional Investors in Global Capital Markets (International Finance Review, Vol. 12), Emerald Group Publishing Limited, Bingley, pp. 207-243. https://doi.org/10.1108/S1569-3767(2011)0000012011

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited