The impact of non-commodity sovereign wealth funds’ ownership on the domestic target firm performance

Abstract

Previous research fails to investigate the impact of sovereign wealth funds (SWFs) on financial and non-financial performances of target firms. This study aims to fill the gap by using quantile regression technique on a sample of non-commodity SWFs and their target firms in five countries, namely France, Singapore, China, Malaysia and Vietnam. The research shows that non-commodity SWFs have a positive effect of increasing the financial performance for domestic target firms with relatively good performance. However, the SWFs have no significant impact on low-performing target businesses. The research findings imply that SWFs have limitations in management skills and experience and hesitate to invest in businesses with poor performance to avoid risks of bankruptcy and financial distress. The results show that the non-commodity SWFs tend to exert a negative impact on the non-financial performance of domestic target firms more strongly when the non-financial performance of the target firms is higher. Finally, these results indicate that SWFs are concerned with both financial and non-financial performances, and try to balance the two types of performance in an optimal way.

Subjects:

• Corporate Finance
• Investment & Securities
• Business
• Management and Accounting

Keywords:

• financial performance
• non-financial performance
• non-commodity sovereign wealth fund
• Vietnam
• stakeholder theory

Public interest statement

Due to the expansion in the role of sovereign wealth funds as a fund management entity, we are interested in investigating their impact on the performance of the target firms. We use the data of target firms with different levels of non-commodity SWFs’ ownership in five countries, namely France, Singapore, China, Malaysia and Vietnam, collected from Thomson Reuters Eikon from 2010-2018. We find that SWFs tend to improve the financial performance of target firms, which confirms the fact that non-commodity SWFs play an appropriate role in managing state funds. Furthermore, we find that non-commodity SWFs will opt for optimal strategies, i.e., they only increase social performance when it is low. This is a good strategy which ensures that the financial performance of the target firms is prioritized.

Acknowledgements

This research is funded by University of Economics and Law, Vietnam National University Ho Chi Minh City, Vietnam.

Additional information

Funding

This research is funded by University of Economics and Law, Vietnam National University Ho Chi Minh City, Vietnam.

Notes on contributors

Doan Thanh Nguyen

Assoc. Prof. Nguyen Chi Hai is the Head of Faculty of Economics at the University of Economics and Law, Vietnam. His main research interest is in the field of economics. Assoc. Prof. Hai has published several papers on quality domestic and international journals. PhD Student Nguyen Thanh Doan is doing his PhD which is specialized in evaluating the performance of sovereign wealth funds. The paper is in a series of the work from his PhD.