Sovereign wealth funds in the globalization of financial markets

Abstract

This paper studies the investment funds with special emphasis on Sovereign Wealth Funds (SWFs), as new participants in the financial market. Considering that financial markets are one of the main carriers of globalization, our goal is to investigate development and the role of these investment funds with reference to contemporary theory and progressive practice of the market of developed countries. Although SWFs emerged in practice more than fifty years ago, they are not sufficiently explored in the theory.

The impact of sovereign wealth fund ownership on the financial performance of firms: the evidence from emerging markets

“…Bortolotti, Fotak and Megginson (2013) argue that companies targeted by active SWFs tend to achieve an abnormal return over the long term, while companies targeted by passive SWFs tend to underperform. Dewenter, Han and Malatesta (2010) suggest that over a fi ve year investment horizon there exists mixed positive evidence on the relation between SWF ownership and the stock performance of targeted fi rms, which is consistent with Kotter and Lel's (2011) fi ndings of zero-returns over the long run. There are other papers, however, that have found that SWFs bring value to their target fi rms.…”

“…For public pension funds, such relations were negative. Similarly Cornett, Marcus, Saunders and Tehranian (2007) fi nd a signifi cant relation between a company's operation cash fl ow returns and both the shareholding proportion and the number of investors, for those institutional investors less likely to have a business relationship with the fi rms. In a similar vein, the empirical fi nding of Yuan, Xiao and Zou (2008) suggest that equity ownership by mutual funds has a positive effect of fi rm performance.…”

“…Foreign institutional investors are quantitatively a very important group especially in emerging markets (Frankel & Menkhoff, 2003), where they have become a signifi cant channel providing capital (Chang, Hsiao, & Tsai, 2013). This group of investors is growing fast in emerging markets, where SWFs still predominate as a source of long-term capital (Della Croce, Stewart, & Yermo, 2011).…”

“…We also included over 1% of an ownership variable (SWF_3) to examine the presence of ownership effect after a certain threshold. Cornett et al (2007) argue that using operating performance measures may offer some advantages over Tobins' Q. First, it is a more focused indicator of the current performance of the company, and unlike Tobins' Q, it is not affected by price changes associated with the anticipated corporate takeover events or other growth opportunities.…”