Weekend Reading

Ashby Monk

Jason Kotter and Ugur Lel have a very interesting new paper out entitled, “Friends or Foes? Target Selection Decisions of Sovereign Wealth Funds and Their Consequences.”

The paper uses variable SWF transparency to investigate investment strategies and target firm valuations. Here’s the premise for the paper:

“The weak legal environment and high level of corruption in many countries with a SWF can also subject target firms to the risk that SWF investments are used for the personal gain of politicians or their supporters…Overall, it is not clear whether SWFs’ investment strategies are based on financial objectives and whether they increase or reduce firm value. However, voluntary SWF transparency can be used as a signal of the likelihood that SWFs’ investment choices are financially based and that they will increase target firm value…investment objectives of SWFs and their impact on firm value are likely related to the degree of transparency and accountability of SWFs. Using voluntary SWF transparency as a proxy for the quality of screening and monitoring by SWFs, we analyze SWFs’ investment activities and their impact on target firm value in this paper.”

It is an interesting paper with some revealing conclusions:

“SWF transparency plays a major role in determining investors’ reaction to the SWF investment announcement…findings suggest that SWFs do not improve firm value in the long-run and do not influence the governance environment of target firms, implying that shareholder activism is not common among SWFs…”

Get the paper here. Have a nice weekend!

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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