Alfonso Del Giudice, Nicoletta Marinelli, Stefania Vitali

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Sovereign Wealth Funds and Target Firms: Does 'Networking' Matter?

  • Abstract

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Keywords: Sovereign Wealth Funds, Firm Operating Performance, Network Analysis. JEL Codes: G23; G32; G15

This paper analyses the impact of Sovereign Wealth Fund (SWF) equity investments on target firm operating performance. Metrics from network analysis are used to investigate whether target firms, that are better connected each other by means of the SWF investments, extract benefits from this network in terms of higher operating performance. The study dataset is made up of 507 SWF acquisition deals worldwide in the time span between 2000 and 2011. Findings indicate that more central firms in the SWF-target firm network enjoy better operating performance. In addition, the analysis points out that operating performance is higher: (i) the larger the stake acquired, (ii) if the investment is direct and domestic, (iii) if the SWF is run by a politician. Overall, the results reveal that only when a target firm can benefit from the network of both political and commercial connections created by SWFs, do they enjoy these benefits and gain in operating performance.

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