Revisiting the Monitoring Role of Sovereign Wealth Funds - Evidence from a Quasi-Natural Experiment

Abstract

Using a shock in the expansion of the Norwegian Government Pension Fund Global (GPFG), we examine the long-term organizational consequences of sovereign wealth fund (SWF) investments. Findings from a difference-in-differences test show that firms improve in firm value following the inclusion to GPFG’s U.S. equity portfolio. Cross-sectional tests document that this effect is stronger for firms with higher monitoring demand and higher likelihood to face passive monitoring pressure. Additional analyses indicate that GPFG engagement improves firms’ governance quality, litigation risk, and myopic investment behavior. Our findings are generalizable to monitoring-sensitive SWFs and suggest that these investors create value for firms.