Two Essays on Sovereign Wealth Funds

• Other Authors: Mauck, Nathan (authoraut)
• Format: Others
• Language: English; English
• Published: Florida State University
• Subjects: Finance; Management
• Online Access: http://purl.flvc.org/fsu/fd/FSU_migr_etd-2663

My dissertation focuses on examining the role that sovereign wealth funds (SWFs) play in the economy. Research in the foreign investment literature generally finds positive impacts associated with foreign investment. However, the literature generally finds a negative impact associated with government ownership. As SWFs fit partially into both groups, it is unclear what to expect a priori and the issue remains for empirical investigation. My first essay investigates the relation between sovereign wealth fund investment and target firm performance. SWF investments are associated with a reduction in the compensation of risk over the five-year term examined. Firm volatility decomposition suggests that it is mainly idiosyncratic risk that drives these impacts. Granger causality results suggest that SWFs are poorly informed in their investments (compared to the market) or they have nonfinancial motivations. There is no evidence that the media coverage precedes the poor performance. My second essay examines the role of bilateral political relations in sovereign wealth fund investment decisions. Our empirical results suggest that political relations play a role in SWF decision making. Contrary to predictions based on the FDI and political relations literature, we find that relative to nations in which they do not invest, SWFs prefer to invest in nations with which they have weaker political relations. Using a two-stage Cragg model, we find that political relations are an important factor in why SWFs invest but matter less in determining how much to invest. These results suggest that SWFs behave differently than other economic agents. Consistent with the FDI and political relations literature, we find that SWF investment has a positive (negative) impact for relatively closed (open) countries. Our results suggest that SWFs use - at least partially - non-financial motives in investment decisions. === A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. === Spring Semester, 2011. === February 11, 2011. === Sovereign Wealth Funds, Return, Risk === Includes bibliographical references. === Bong Soo Lee, Professor Directing Dissertation; Thomas Zuehlke, University Representative; David Peterson, Committee Member; April Knill, Committee Member.