Do Sovereign Wealth Funds (Really) Destroy Firm Value?

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This paper reconciles an ongoing debate in literature on whether sovereign wealth funds(SWFs) affect operating performance of listed firms and shareholder wealth. I provide solutions to three major problems that lead to inconsistency in existing literature: (1) overlook the critical role of stake size in identifying potential impact; (2) evidences of real effect is sparse and based on incomplete metrics of firm operation;(3) reliance on ad-hoc specification of matching. Evidences of this paper suggest that previous belief that SWFs destroy or improve firm performance should be reformulated using methodology that incorporates analysis of stake size. SWFs rarely seek controlling or influential stake size in a listed firm. Partaking profit from well-established firms, not casting political influence, appears to be the main motive of SWFs in listed firms. This investment motive does not, in turn, lead to political distortion of firm operation.

Author(s):

Xiqian Zhang    
Institute of Financial Analysis, University of Neuchâtel
Switzerland