Sovereign Wealth Funds Empirical Studies: A Critical View

Abstract

Sovereign wealth funds (SWFs) is an increasing power in the global financial markets due to their large assets and growing number. They continue to make headline news and capture the attention of academics, practitioners and policymakers. The authors summarize empirical research on SWFs and conclude that researchers have focused on the relationship between SWFs investments and the target firm's value and performance. Due to the lack of a common definition of SWF, existing empirical studies are based on different sample sizes, different values of SWFs, and different values and number of their deals. In sum, studies conclude a positive response from the market to the SWFs investments in the short term. However, there is very little unanimity with respect to the long-term effects of SWFs investments. The authors also survey research on SWFs investments allocation, and find a preference for large foreign firms who confront financial difficulties and for strategic sectors, especially the financial sector. Otherwise, political, cultural and economic factors play an important role in their investment choices and capital allocation strategies. The authors also note the lack of studies testing the perception of the debt market about SWFs investments and confirm the importance of considering the heterogeneity among SWFs and their governance characteristics. Finally, they call for a common definition of SWFs.