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.
|Series||International Finance Review|