Does Government’s International Acquisitions Help or Hurt Home Country Firms?

Abstract

The emergence of governments as global investors, via sovereign wealth funds (SWFs), extends governments’ sphere of influence beyond their home countries. We suggest that government investments are politicized because they modify the institutional environment in host countries, but subsequently, these investments gain legitimacy with important effects for internationalizing home country firms’ strategic choices. Empirical analysis of cross-border acquisitions undertaken by Norway’s SWF and firms during 1984-2012 show that firms are less likely to undertake majority ownership in targets as the SWF’s investments in a host country increases, but this effect diminishes as the SWF investments accumulate. The politicization effect of SWF investments is less pronounced for government-owned firms, but more accentuated when the target resides in a highly regulated industry. Our findings highlight the emergent role of government via SWFs that elicit institutional changes and deviations from the status quo in host c...