institutional investors in global capital markets (international finance review)

INSTITUTIONAL INVESTORS IN GLOBAL CAPITAL MARKETS INTERNATIONAL FINANCE REVIEW Series Editor: J Jay Choi International Finance Review is an annual book series in the international finance area (broadly defined) The IFR will publish theoretical, empirical, institutional, or policy-oriented articles on multinational financial management and strategies, global corporate governance and risk management, global capital markets and investments, emerging market finance, international financial economics, or related issues Each volume generally will have a particular theme Those interested in contributing an article or editing a volume should contact the series editor (J Jay Choi, Temple University, jjchoi@temple.edu) Volume 1: Asian Financial Crisis: Financial, Structural and International Dimensions, edited by J Choi, Elsevier 2000 Volume 2: European Monetary Union and Capital Markets, edited by J Choi and J Wrase, Elsevier 2001 Volume 3: Global Risk Management: Financial, Operational, and Insurance Strategies, edited by J Choi and M Powers, Elsevier 2002 Volume 4: The Japanese Finance: Corporate Finance and Capital Markets in Changing Japan, edited by J Choi and T Hiraki, Elsevier 2003 Volume 5: Latin American Financial Markets: Developments in Financial Innovations, edited by Harvey Arbela´ez and Reid W Click, Elsevier 2004 Volume 6: Emerging European Financial Markets: Independence and Integration PostEnlargement, edited by Jonathan A Batten and Colm Kearney, Elsevier 2005 Volume 7: Value Creation in Multinational Enterprise, edited by, J Choi and Reid W Click, Elsevier 2006 Volume 8: Asia-Pacific Financial Markets: Integration, Innovation and Challenges, edited by Suk-Joong Kim and Michael McKenzie, Elsevier 2007 Volume 9: Institutional Approach to Global Corporate Governance: Business Systems and Beyond, edited by J Choi and Sandra Dow, Emerald 2008 Volume 10: Credit, Currency, or Derivatives: Instruments of Global Financial Stability or Crisis? edited by J Choi and Michael G Papaioannou, Emerald 2009 Volume 11: International Banking in the New Era: Post-Crisis Challenges and Opportunities, edited by Suk-Joong Kim and Michael D McKenzie, Emerald 2010 INTERNATIONAL FINANCE REVIEW VOLUME 12 INSTITUTIONAL INVESTORS IN GLOBAL CAPITAL MARKETS EDITED BY NARJESS BOUBAKRI School of Business and Management, American University of Sharjah JEAN-CLAUDE COSSET HEC Montre´al United Kingdom – North America – Japan India – Malaysia – China LIST OF CONTRIBUTORS Carlos Alves Faculdade de Economia and CEF.UP, Universidade Porto, Porto, Portugal Najah Attig Sobey School of Business, Saint Mary’s University, Halifax, Canada Rolando Avendan˜o OECD Development Centre, Paris, France and Paris School of Economics, Paris, France Christopher Balding HSBC School of Business, Peking University, Beijing, China Narjess Boubakri School of Business and Management, American University of Sharjah, Sharjah, United Arab Emirates Don Bredin UCD Michael Smurfit Graduate School of Business, Dublin, Ireland Jean-Claude Cosset HEC Montre´al, Montre´al, Que´bec, Canada Sadok El Ghoul Campus Saint-Jean, University of Alberta, Edmonton, Canada Issa Faye Development Research Department, African Development Bank, Tunis, Tunisia Omrane Guedhami Moore School of Business, University of South Carolina, Columbia, SC, USA E´cole des sciences de la gestion, Universite´ du Que´bec a` Montre´al, Montre´al, Que´bec, Canada Olfa Hamza Heiko Hesse Monetary and Capital Markets, International Monetary Fund, Washington, DC, USA ix x LIST OF CONTRIBUTORS Maher Kooli E´cole des sciences de la gestion, Universite´ du Que´bec a` Montre´al, Montre´al, Que´bec, Canada Yuhua Li Graduate School of Economics, Kyushu University, Hakozaki, Higashiku, Fukuoka, Japan Ningyue Liu UCD Michael Smurfit Graduate School of Business, University College Dublin, Blackrock, Dublin, Ireland Victor Mendes CMVM – Comissa˜o Mercado de Valores Mobilia´rios, Lisboa, Portugal; CEFAGE-UE Universidade de E´vora, E´vora, Portugal S V D Nageswara Rao School of Management, IIT Bombay, Mumbai, India Nabil Samir HEC Montre´al, Montre´al, Que´bec, Canada Javier Santiso ESADE Business School, Madrid Campus, Barcelona, Spain Elvira Sojli Rotterdam School of Management, Erasmus University, Rotterdam, the Netherlands Hyacinthe Y Some´ HEC Montre´al, Montre´al, Que´bec, Canada Gohar G Stepanyan Faculdade de cieˆncias econo´micas e empresariais, Universidade Cato´lica Portuguesa, Lisbon, Portugal Tao Sun Monetary and Capital Markets, International Monetary Fund, Washington, DC, USA Mangesh Tayde Bombay Stock Exchange and School of Management, IIT Bombay, Mumbai, India Wing Wah Tham Erasmus School of Economics, Erasmus University, Rotterdam, the Netherlands xi List of Contributors Thouraya Triki Development Research Department, African Development Bank, Tunis, Tunisia Konari Uchida Faculty of Economics, Kyushu University, Hakozaki, Higashiku, Fukuoka, Japan Yao Yao HSBC School of Business, Peking University, Beijing, China Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2011 Copyright r 2011 Emerald Group Publishing Limited Reprints and permission service Contact: booksandseries@emeraldinsight.com No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center No responsibility is accepted for the accuracy of information contained in the text, illustrations or advertisements The opinions expressed in these chapters are not necessarily those of the Editor or the publisher British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78052-242-5 ISSN: 1569-3767 (Series) Emerald Group Publishing Limited, Howard House, Environmental Management System has been certified by ISOQAR to ISO 14001:2004 standards Awarded in recognition of Emerald’s production department’s adherence to quality systems and processes when preparing scholarly journals for print INTRODUCTION TO INSTITUTIONAL INVESTORS IN GLOBAL CAPITAL MARKETS Narjess Boubakri, Jean-Claude Cosset and Hyacinthe Y Some´ PART I: INTRODUCTION TO INSTITUTIONAL INVESTORS IN GLOBAL CAPITAL MARKETS Institutional investors have increasingly gained importance since the early 1990s The assets under management in these funds have increased threefold since 1990 to reach more than US$45 trillion in 2005, including over US$20 trillion in equity (Ferreira & Matos, 2008) Further, the value of institutional investors’ assets represents roughly 162.6% of the OECD gross domestic product in 2005 (Gonnard, Kim, & Ynesta, 2008) Given the magnitude of institutional investors’ holdings relative to the world market capitalization, challenging questions on the economic role of these investors have been raised One such question concerns their impact on the stability of stock markets On the one hand, active strategies of buying and selling shares by these investors may contribute to moving stock prices away from their fundamental values On the other hand, if all institutional investors react to the same information in a timely manner, they are in fact helping to increase market efficiency by speeding up the adjustment of prices to new fundamentals (for competing theories on the role of institutional investors, see, e.g., Lakonishok, Shleifer, & Institutional Investors in Global Capital Markets International Finance Review, Volume 12, 3–13 Copyright r 2011 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1569-3767/doi:10.1108/S1569-3767(2011)0000012003 NARJESS BOUBAKRI ET AL Vishny, 1992) This view of institutional investors as ‘‘efficiency drivers’’ generated considerable debate for many years (see, e.g., Ferreira & Laux, 2007; French & Roll, 1986) Another important question about institutional investors that has caught the attention of the academic world is their impact on corporate governance practices Institutional investors are large entities with considerable amounts of money to invest, and are thus more likely to buy sizeable blocks of a target firm’s common stock In addition, given their informational advantage, these investors are likely to weigh more heavily on target firms while monitoring top management activities (Ferreira & Laux, 2007) Although corporate governance is mostly determined at the country level, institutional investors are considered major drivers of changes in corporate governance systems (Gillan & Starks, 2003) In particular, the effectiveness of institutional investors as a corporate governance mechanism will likely depend on the level of shareholder protection in the country In this vein, Aggarwal, Erel, Ferreira, and Matos (2011) show that institutional investors play a crucial role in corporate governance practices of local firms, but only in countries with strong investor protection In countries with weak investor protection, the main drivers of corporate governance improvements are instead foreign institutions that originate from countries with strong investor protection The recent financial and economic crisis has also raised concerns about the economic and social effect of institutional investment strategies On the one hand, while short-term investments provide market liquidity and accountability, they may also lead to underinvestment in maintenance, customer loyalty, employment training, research and development owing to their primary focus on labor-market reputation and stock prices On the other hand, long-term investments have at least two significant impacts on corporations and the society as a whole: first, long-term investors can act as a stabilizing force during economic downturns by buying securities when liquidity dries up; second, long-term investors will lead firms to better align their objectives and activities with long-term economic growth, particularly from long-term environmental, governance, and social perspectives According to the World Economic Forum report (2011), estimates of global infrastructure needs have reached US$ trillion per annum, a sum which public finances are increasingly unable to meet.1 Although long-term institutional investors represent about half of the world’s professionally managed assets, the report shows that only 25% (about US$ 6.5 trillion as of 2009) of their assets is used for long-term investment Given such a small percent devoted to long-term investments, the role that institutional Introduction to Institutional Investors in Global Capital Markets investors might play in the global economy remains limited The purpose of this book is to shed light on the influence of institutional investors on global markets over the recent decades, and to identify their perspectives for the future In this book, ‘‘institutional investors’’ refers to investments companies, mutual funds, pension funds, foundations, sovereign wealth funds (SWFs), insurance companies, and investment banks We shall particularly focus on SWFs defined as ‘‘a government investment vehicle that invests in foreign currency denominated assets and whose management is distinct from that of official reserves’’ (Jen, 2007, p 1) A SWF is set up for a variety of macroeconomic purposes, which include short-term objectives (economic stabilization) and long-term investment (development funds and savings for future generations) According to the IMF (2008), SWFs probably manage between US$ 2–3 trillion The increased importance of SWFs in the global financial markets has recently fueled a heated debate on their size, lack of transparency, and investment strategies, assumed by some to be driven by political objectives Further, SWF investments are vulnerable to host countries’ regulations on capital mobility.2 The present book addresses some of these concerns Overall, the purpose of this book, titled ‘‘Institutional investors in global capital markets,’’ is to investigate institutional investors’ portfolio preferences, their influence on firm activities and local economies, and their reaction to the recent financial and economic crisis The book is divided into four parts Part I is an introduction to the book Part II covers three chapters which study the economic and financial impact of institutional investors In Part III, four chapters analyze the investment preferences of institutional investors Part IV has three chapters which focus on the benefits of SWFs Finally, three chapters in Part V analyze the drivers of the asset allocation of SWFs PART II: INSTITUTIONAL INVESTORS: THEIR ECONOMIC AND FINANCIAL IMPACT This part starts with a chapter titled ‘‘Foreign institutional investors’’ by Gohar Stepanyan who reviews the empirical literature on the process of international financial integration and the growing role of foreign institutional investors Specifically, Gohar Stepanyan examines how institutional investors accelerate the development of capital markets and 375 Sovereign Wealth Fund Acquisitions Table Region Asia Europe North America Middle East Pacific Latin America Africa Distribution of Acquisitions by Host Region Sovereign Wealth Funds (%) Mutual Funds (%) 51 24 20 60 Source: Authors’ calculations, based on Zephyr and SDC (2010) economies, suggesting that these investments are dictated by diversification objectives as well as the desire to minimize information asymmetries Regarding mutual funds, Hau and Rey (2008) and Avendan˜o and Santiso (2009), for example, show that the United States is the leading destination for this category of investors Our sample shows however that the United Kingdom is well ahead of the United States as the favorite destination for acquisitions by mutual fund managers (30% compared to 7%, respectively) Table reports the breakdown of the acquisitions by region The regional distribution of investments shows that, as stated by Balding (2008) and Chhaochharia and Laeven (2009), SWFs prefer to invest in countries with common cultural or religious values Mutual funds, mainly from the G20 countries, follow the same trend, as 60% of their transactions take place in Europe Additionally, we note that the two regions favored by institutional investors are Europe and Asia, but the distribution of acquisitions shows that SWFs invest more in Asia than in Europe while the opposite is true for mutual funds Finally, the analysis of the industrial distribution of acquisitions in Table indicates that SWFs show, in general, the same preferences as mutual funds, apart from an overweight in the financial industry at the expense of manufacturing and technologies Description of Variables In our analysis we focus on the following variables: SIZE is the size of the target company as measured by the natural logarithm of total assets in millions of U.S dollars for the fiscal year preceding the year of the transaction (Bortolotti et al., 2009; Fernandes (2009)) 376 NARJESS BOUBAKRI ET AL Table Industrial Sector Consumer goods Finance Manufacturing Basic material Oil & gas Health Consumer services Utilities Technologies Telecommunications Distribution of Acquisitions by Industrial Sector Sovereign Wealth Funds (%) Mutual Funds (%) 10 37 19 4 11 10 12 22 6 20 11 Source: Authors’ calculations, based on Zephyr, SDC and Datastream (2010) LIQUID represents the liquidity of common stock of the target firm, measured by the average number of shares traded in one day as a percentage of the total number of shares outstanding (Fernandes, 2009; Ferreira & Matos, 2008) PROFIT is profitability measured by return on equity (ROE) for the fiscal year preceding the year of the transaction (Bortolotti et al., 2009; Fernandes, 2009; Ferreira & Matos, 2008) LEV represents the leverage of the target firm measured by total debt as a percentage of total assets (Fernandes, 2009) for the fiscal year before the year of the transaction CASH is the level of cash available to the target company It is measured by the amount of cash as a percentage of total assets for the fiscal year preceding the year of the transaction (Fernandes, 2009; Ferreira & Matos, 2008) RETURN is the historic dividend yield of common stock of the target company (Fernandes, 2009; Ferreira & Matos, 2008) calculated with the adjusted price for the year preceding the transaction PBR is the price to book on the date of the transaction (Avendan˜o & Santiso, 2009) OPP captures the growth opportunities of the target firm as measured by the annual growth of net sales, as in Durnev and Kim (2005) and Ferreira and Matos (2008) DIVY represents the dividend yield, measured on the day of the transaction The dividend yield is used by Avendan˜o and Santiso (2009), Bortolotti et al (2009), Fernandes (2009), Ferreira and Matos (2008) Sovereign Wealth Fund Acquisitions 377 CONC represents the level of ownership concentration of the target company measured on the day of the transaction by the number of shares held by insiders as a percentage of the total number of common shares outstanding (Ferreira & Matos, 2008; Kotter & Lel, 2011) LEG represents the quality of the legal environment of the host country, measured by the Anti-Self Dealing Index developed by Djankov, La Porta, Lopez-de-Silanes, and Shleifer (2008) This index, used by Fernandes (2009), quantifies the level of legal protection afforded to minority shareholders against expropriation by insiders We used data on the Anti-Self Dealing Index directly from Djankov et al (2008) for the year 2003 DEV represents the level of economic development of the target country (Fernandes, 2009; Ferreira & Matos, 2008) This indicator of economic development is measured by the natural logarithm of GDP per capita in current U.S dollars (World Development Indicators) for the year of the transaction FIN represents the level of financial development of host countries, measured by total market capitalization as a percentage of total GDP We draw the data from World Development Indicators for the year of the transaction DIST is the geographical distance between the acquirer and the host country (Ferreira & Matos, 2008) This variable is measured by the natural logarithm of the distance in kilometers between the capitals of the fund and target country The distances are obtained from Google Maps mapping system CULT represents the cultural affinity between the acquirer and target country, measured by a dichotomous variable equal to if the language most commonly used in both countries is the same according to the CIA World Factbook 2010 RELIG represents the religious affinity between the acquirer and the target country, and is measured by a dummy variable equal to if both countries practice the same religion according to the CIA World Factbook 2010 ANALYST represents financial visibility, measured by the number of analysts following the firm in of the year of the transaction (Fernandes, 2009; Ferreira & Matos, 2008) The number of financial analysts is extracted from the database IBES (Institutional Brokers’ Estimate System), which aggregates the estimates of financial analysts on nearly 45,000 companies across 70 markets worldwide VISINT represents the international visibility, measured by sales abroad as a percentage of total net sales for the fiscal year preceding the year of the transaction 378 NARJESS BOUBAKRI ET AL INNOV is the level of expertise and innovation of the target company as measured by the intangible assets as a percentage of total assets for the fiscal year preceding the year of the transaction We use this variable following Kotter and Lel (2011) It is important to note that we preferred to use intangible assets as a measure of the level of expertise and innovation rather than the amount of research and development (Fernandes, 2009) due to the greater availability of data for this measure in Datastream and Worldscope UNIVARIATE ANALYSIS In this section, we analyze the differences and similarities between the characteristics of the main sample (SWFs) and the control sample (mutual funds) Specifically, we test whether there is a difference between the variables for each of the subsamples using the t-test of mean difference and the Wilcoxon z-test of median difference Table displays the results We note that the size of acquisitions made by SWFs is significantly larger than those by mutual funds (at the 1% level of significance) Indeed, the average (median) total assets reaches 45 billion dollars (1.5) for the main sample (SWF acquisitions), as compared to only 13.64 (0.8) for the control sample (mutual fund acquisitions) As expected, the liquidity ratio mean and median of SWF targets are significantly (at 5% and 1%) lower than those of companies acquired by mutual funds SWFs seem not to prefer companies that experienced a recent satisfactory financial performance Three variables are used to validate this assumption First, the mean and median leverage of firms acquired by SWFs is significantly (at the 5% and 1% level) higher than those of the control sample The mean and median cash of SWF targets are, in turn, significantly (1%) lower than those of the control sample There is, however no significant difference between the levels of profitability of the two groups Looking at the historical average and median of the dividend yield in SWF acquired firms shows that they are lower (at the 5% and 1% level, respectively) than firms in which mutual funds have acquired interests PBR – The average and median valuation of companies in the main sample is significantly lower than that in the control sample SWFs thus prefer companies that are more affordable compared to mutual funds OPP – Because of the preference of SWFs for affordable shares (value stocks) rather than growth stocks, we conjecture that the investment opportunities of SWF targets are lower than in mutual funds targets The 379 Sovereign Wealth Fund Acquisitions Table Variables SIZE LIQUID LEV PROFIT CASH RETURN PBR OPP DIVY CONC LEG DEV FIN DIST CULT RELIG VISFIN VISINT INNOV Univariate Analysis SWFs Mutual Funds SWFs vs Mutual Funds Mean (Median) Mean (Median) t-stat (Wilcoxon z) 7.45 (7.34) 1.30 (0.84) 0.25 (0.24) 11.79% (13.21%) 6.95% (3.65%) 18% (1%) 1.53 (1.67) 32% (15%) 2.29% (1.54%) 36.46% (36.90%) 0.64 (0.65) 9.11 (9.77) 113.70 (92.86) 6.47 (8.33) 0.32 (0.00) 0.39 (0.00) 8.76 (5.00) 31% (19%) 5% (0%) 6.77 (6.78) 1.69 (1.10) 0.22 (0.20) 10.39% (12.04%) 12.63% (6.78%) 30% (17%) 3.09 (2.22) 29% (11%) 2.03% (1.71%) 28.86% (25.52%) 0.64 (0.65) 10.28 (10.53) 112.14 (128.11) 7.16 (8.68) 0.59 (1.00) 0.88 (1.00) 9.29 (8.00) 41% (38%) 15% (5%) 4.25ÃÃÃ (3.41ÃÃÃ) 2.54ÃÃ (À3.17ÃÃÃ) 2.27ÃÃ (2.83ÃÃÃ) 0.63 (1.45) 4.46ÃÃÃ (À4.77ÃÃÃ) 2.19ÃÃ (À2.97ÃÃÃ) 6.17ÃÃÃ (À4.92ÃÃÃ) 0.42 (2.03ÃÃ) 1.63 (0.01) 4.28ÃÃÃ (2.71ÃÃÃ) 0.07 (0.56) 16.66ÃÃÃ (À12.73ÃÃÃ) 0.38 (À2.24ÃÃ) 2.94ÃÃÃ (À7.06ÃÃÃ) 7.90ÃÃÃ (À7.77ÃÃÃ) 20.68ÃÃÃ (À18.59ÃÃÃ) 0.86 (À2.22ÃÃ) 3.16ÃÃÃ (À3.29ÃÃÃ) 7.08ÃÃÃ (À9.25ÃÃÃ) Our subsamples respectively include 251 targets by SWFs and 1,594 targets by mutual funds The definition of the variables appears in Appendix B ÃÃÃSignificant at the 1% level, ÃÃsignificant at the 5% level, Ãsignificant at the 10% level, respectively 380 NARJESS BOUBAKRI ET AL Wilcoxon z-test shows, with a 5% level of significance, that investment opportunities in acquisitions by SWFs are higher than in those made by mutual funds DIV – The dividend yield in SWF targets and mutual fund targets is similar while the mean and median ownership concentration in SWF targets are significantly (at the 1% level) higher than those in firms targeted by mutual funds Finally, looking at the country characteristics, we find the following There seems to be no significant difference between the level of investor protection in the targets of SWFs and mutual funds There is however a significant difference in the level of the economic development of the host countries At the 1% level of significance, the level of economic development identified for the main sample is lower than for the control sample However, there is no significant difference between subsamples based on the level of financial development Geographic proximity plays an important role in the choice of investments Indeed, we find a significant difference (at the 1% level) between the two samples, with the average (median) distance between mutual funds and the companies in which they acquire stakes being higher than that separating SWFs and their targets This suggests that the geographic distance of the targets is an important factor in the decision of SWFs Our results also show the existence of a cultural and religious bias in mutual fund investments Indeed, the mean and median values of RELIG and CULT are significantly higher for the control sample than the original sample, suggesting that mutual funds are more likely to choose targets in countries that are culturally and religiously close than are SWFs SWFs and mutual funds show the same degree of preference for target visibility as the tests reveal no significant differences between the two samples in terms of the number of analysts following targets However, the median difference test, which is generally accepted as being more relevant, reports a significant difference (at the 5% level) for the control sample Using the percentage of export sales, we find it to be significantly (1%) lower for targets of SWFs compared to targets of mutual funds As expected, the average and median level of innovation and business expertise of firms acquired by sovereign funds are significantly lower (at the 1% level of significance) than those for firms targeted by mutual funds Sovereign Wealth Fund Acquisitions 381 To summarize, we find that, compared to mutual funds, sovereign funds prefer to acquire stakes in larger, less liquid companies which are financially distressed but which also have a higher level of investment opportunities They also prefer less innovative firms with more concentrated ownership, which are located in less developed but geographically closer countries with whom they not necessarily share cultural and religious backgrounds CONCLUSION In this study, we compare the characteristics of firms targeted by SWFs around the world to a control sample of targets acquired by mutual funds (251 for SWFs and 1,594 for mutual funds) Although SWFs are not exactly like other investors, their behavior does not differ markedly Indeed, SWFs generally act as rational investors: compared to mutual funds, they prefer larger, less liquid, and less innovative public firms with more concentrated ownership They also prefer to target firms in financial distress, with undervalued stocks and high growth opportunities In addition, they seem more likely to choose firms that are physically but not necessarily culturally or religiously close, in order to reduce information asymmetry Our results show that SWFs are not Machiavellian investors that pursue political objectives, contrary to what has been argued by many Nevertheless, SWFs still face serious challenges to improve their public image and reverse the protectionist trend that affects their investments in Western countries Examples abound: the failed attempts of the Chinese company CNOOC to take over Unocal and of the UAE DP World to buy P&O in 2005 are revealing in this sense (Bean, 2009) One major issue is the lack of transparency of SWFs (Bortolotti et al., 2009) Indeed, with the exception of a few players such as the Norwegian fund, most SWFs not communicate their investment strategy, nor they disclose the composition of their asset portfolio This lack of transparency is amplified by the fact that the largest funds in terms of size, which often come from developing countries, are generally the least transparent By way of illustration, Beck and Fidora (2008) estimate that the seven largest of the least transparent funds account for more than half of the assets under management by all SWFs In an effort to overcome these suspicions, major SWFs from around the world (23 in total) met under the auspices of the IMF as part of the International Working Group of Sovereign Wealth Funds (IWG) to agree on the Santiago Principles (IWG, 2008) In conformity with these 382 NARJESS BOUBAKRI ET AL principles, some SWFs (e.g., ADIA and CIC) have disclosed information for the first time about their structure, objectives, and investment strategies However, this disclosure was considered by many to be superficial and insufficient (Fotak, 2010; Hill & Knowlton, 2010) It should finally be noted that financial markets not seem to share the fears of politicians – quite the contrary In fact, the acquisition of a sovereign fund is usually accompanied by an average positive reaction of the market of 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– Dubai UAE – Abu Dhabi UAE – Abu Dhabi Bahrain Oman Saudi Arabia UAE – Ras Al Khaimah UAE-Federal Oman UAE – Abu Dhabi Name Assets in M$ Abu Dhabi Investment 627 Authority (ADIA) SAMA Foreign Holdings 415 Kuwait Investment 202.8 Authority (KIA) Qatar Investment 85 Authority (QIA) Investment Corporation of 19.6 Dubai (ICD) International Petroleum 14 Investment Company (IPIC) Mubadala Development 13.3 Company Mumtalakat Holding 9.1 Company State General Reserve 8.2 Fund Public Investment Fund 5.3 RAK Investment 1.2 Authority Emirates Investment ND Authority Oman Investment Fund ND Abu Dhabi Investment ND Council Source: SWF Institute (2009) Date of Creation Source 1976 Oil ND 1953 Oil Oil 2005 Oil 2006 Oil 1984 Oil 2002 Oil 2006 Oil 1980 Oil and gas 2008 2005 Oil Oil 2007 Oil 2006 2007 Oil Oil 386 NARJESS BOUBAKRI ET AL SWFs from Asia Country Azerbaijan Brunei Name State Oil Fund Brunei Investment Agency China SAFE Investment Company China China Investment Corporation China National Social Security Fund China China-Africa Development Fund China – Hong Hong Kong Monetary Kong Authority Investment Portfolio South Korea Korea Investment Corporation Indonesia Government Investment Unit Iran Oil Stabilisation Fund Malaysia Khazanah Nasional Singapore Government of Singapore Investment Corporation Singapore Temasek Holdings Timor Timor-Leste Petroleum Oriental Fund Vietnam State Capital Investment Corporation Source: SWF Institute (2009) Assets in M$ Date of Creation Source 21.7 30 1999 1983 Oil Oil 347.1 1997 Non-commodity 332.4 2007 Non-commodity 146.5 2000 Non-commodity 2007 Non-commodity 227.6 1993 Non-commodity 30.3 2005 Non-commodity 0.3 2006 Non-commodity 23 25 247.5 1999 Oil 1993 Non-commodity 1981 Non-commodity 133 6.3 1974 Non-commodity 2005 Oil and gas 0.5 2006 Non-commodity 387 Sovereign Wealth Fund Acquisitions Other SWFs Country Norway Russia Libya Australia Name Assets Date of in M$ Creation Government Pension 512 Fund-Global National Welfare Fund 142.5 Libyan Investment 70 Authority Australian Future Fund 59.1 Algeria Revenue Regulation Fund Kazakhstan Kazakhstan National Fund United States – Alaska Permanent Alaska Fund Ireland National Pensions Reserve Fund France Strategic Investment Fund Chile Social and Economic Stabilization fund Canada Alberta’s Heritage Fund United States – New Mexico State New Mexico Investment Council New Zealand New Zealand Superannuation Fund Brazil Sovereign Fund of Brazil Botswana Pula Fund United States – Permanent Wyoming Wyoming Mineral Trust Fund Source 1990 Oil 2008 2006 Oil Oil 2004 56.7 2000 Noncommodity Oil 38 2000 Oil 35.5 1976 Oil 33 2001 28 2008 21.8 1985 Noncommodity Noncommodity Tin 13.8 1976 Oil 12.9 1958 12.1 2003 Noncommodity Noncommodity 8.6 2009 6.9 1994 3.6 1974 Noncommodity Mining and diamonds Mining 2.9 2000 Oil 388 Trinidad and Tobago Venezuela Nigeria Kiribati Mauritania NARJESS BOUBAKRI ET AL Heritage and Stabilization Fund FEM Excess Crude Account Revenue Equalization Reserve Fund National Fund for Hydrocarbon Reserves 0.8 0.5 0.4 1998 2004 1956 Oil Oil Phosphates 0.3 2006 Oil and gas Source: SWF Institute (2009) APPENDIX B Name Definition SIZE Size, neperian logarithm of total assets in millions of USD Financial leverage, total debt as a percentage of total assets LEV PBR P/B, price/book value ratio DIVY Dividend yield VISINT International visibility, foreign sales as a percentage of total net sales Financial visibility, number of financial analysts following the firm’s shares Expertise/innovation: Intangible assets as a percentage of total assets VISFIN INNOV PROFIT Profitability: Return on equity (ROE) CASH Cash as a percentage of total assets Source Worldscope, WC07230 Worldscope, (WC03255/ WC02999) Worldscope, WC09304 Worldscope, WC09404 Worldscope, WC08731 I/B/E/S Worldscope, (WC02649/ WC02999) Worldscope, WC08301 Worldscope, (WC02003/ WC02999) 389 Sovereign Wealth Fund Acquisitions Name Definition CONC Ownership concentration, closely held shares as a percentage of total outstanding ordinary shares Stock returns of target firm calculated with adjusted price Stock liquidity: Number of shares traded in one day as a percentage of total outstanding shares Growth/investment opportunities: Two-year arithmetical mean of the annual net sales growth Economic development of host country: Neperian logarithm of GDP in current USD Financial development of host country: Total market capitalization of host country’s locally listed firms as a percentage of GDP Legal environment: Anti-self dealing index, measure of the legal protection of minority shareholders against expropriation by insiders Geographical distance : Neperian logarithm of the distance in kilometers between the capital of the fund’s home country and the capital of the host country Cultural affinity: A dichotomous variable, equal to if the language most used in the fund’s home country and the host country is the same Religious affinity: Dichotomous variable, equal to if the religion most practiced in the fund’s home country and the host country is the same RETURN LIQUID OPP DEV FIN LEG DIST CULT RELIG Source Worldscope, (WC05475/ WC05301) Datastream, P Datastream, (VO/NOSH) Worldscope, WC08631 World Development Indicators WDI World Development Indicators WDI Djankov et al (2008) Google Maps CIA World Factbook CIA World Factbook ... CAPITAL MARKETS Narjess Boubakri, Jean-Claude Cosset and Hyacinthe Y Some´ PART I: INTRODUCTION TO INSTITUTIONAL INVESTORS IN GLOBAL CAPITAL MARKETS Institutional investors have increasingly gained... long-term investment Given such a small percent devoted to long-term investments, the role that institutional Introduction to Institutional Investors in Global Capital Markets investors might play in. .. wish to attract capital from foreign institutional investors In the third chapter, titled ‘‘Do foreign institutional investors exhibit herding and positive feedback trading in Indian markets? ’’ Mangesh