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Special Issue for the Journal of International Business Policy
THE EVOLVING ROLE OF Sovereign Wealth Funds:
ISSUES and challenges
Special Issue Editors:
§ Narjess Boubakri (Professor of Finance and Bank of Sharjah Chair in Banking and Finance, School of Business Administration, American University of Sharjah, American University of Sharjah, UAE)
§ Veljko Fotak (Associate Professor of Finance at the University at Buffalo and a Fellow at the Sovereign Investment Lab at Bocconi University)
§ Omrane Guedhami (C. Russell Hill Professor and Professor of International Finance, Moore School of Business, University of South Carolina)
§ Yukihiro Yasuda (Professor of Graduate School of Business Administration, Hitotsubashi University, Tokyo, Japan)
Deadline for submission: November 5, 2021 (for special issue)
Tentative publication date: Fall 2022
Significance of the Topic and Reasons for the Special Issue of JIBP
The Sovereign Wealth Fund Institute defines a Sovereign Wealth Fund (SWF) as “a state-owned investment fund or entity that is commonly established from balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, governmental transfer payments, fiscal surpluses, and/or receipts resulting from resource exports.” SWFs invest worldwide in a myriad of asset classes (stocks, Treasury bonds, etc.) and sectors (financial, real estate and infrastructure, power generation, sports, commodities, airlines, manufacturing, etc.). Because of their rapid growth and sheer scale (by June 2018, SWFs had accumulated $7.8 trillion of assets under management, from $3.3 trillion in 2004, according to data from the Sovereign Wealth Fund Institute), SWFs have attracted substantial interest from academics, practitioners, politicians, media, and the public at large. Notably, Google News reports 632,000 news items related to SWFs in the first nine months of 2020.
While the explicit goals and objectives of individual SWFs differ, most have a mandate to preserve wealth from limited natural resources for future generations. At the same time, SWFs aim to diversify revenue streams of countries tied to natural resources by investing in unrelated industries, generally outside their domestic borders. In this form, SWFs have been around for more than 50 years, but first came to the attention of Western audiences about a decade and a half ago. The global financial crisis (GFC) brought their aggressive acquisition sprees to light, as well as their role as liquidity providers to failing financial and non-financial firms. The renewed attention has revealed their deep impact on foreign markets and the domestic economies from which they originate. Virtually all countries have been affected by SWF investments, both directly and indirectly.
However, today, SWFs face a perfect storm, with a confluence of challenges. First, collapsing oil prices have dramatically slowed the pace of asset accumulation that helped them rise to prominence. At the same time, a world with greater trade restrictions and tighter borders (Evenett, 2019) implies lower global currency imbalances. This further depletes the main sources of asset accumulation for currency reserve-based funds. The size of SWF portfolios has also shrunk due to huge losses, as SWFs were forced to liquidate parts of their portfolios at fire-sale prices in order to support domestic economies. To compound these trends that imperil the long-term survival of funds, recent corruption scandals have embroiled funds from the Korea Investment Corporation (KIC) to the Malaysian State Fund 1MBD and even the Norwegian Pension Fund Global, widely seen as the best-governed SWF.
What has emerged is the need for a fundamental governance overhaul, including a more explicit definition of the main objective of each fund, highlighted by the need to set priorities among wealth preservation, revenue diversification, economic development, and fiscal stabilization. In the midst of these challenges, we question whether we should anticipate an end to the golden age of SWFs, or the beginning of a new trend, one in which SWFs redefine their main role away from simple wealth preservation to helping domestic economies diversify from hydrocarbons.
In the midst of the economic carnage from the coronavirus pandemic, slower global economic growth, and a steep rise in protectionism, SWFs are, more than ever, expected to dedicate large amounts to domestic investments (Cuervo-Cazurra, 2018). This pressure, together with more uncertain sources of revenues to these funds, is putting them under the spotlight of academicians and politicians alike (Grira, 2019; Megginson & Fotak, 2020; Megginson & Gao, 2020). The bailout programs that resulted from the GFC also underlined the phenomenon of “capitalist states,” as governments began keeping pace with acquisitions worldwide (e.g., Kotter & Lel, 2011; Megginson & Fotak, 2015; Park, Xu, In, & Ji, 2018). This topic is likely to attract even greater interest in the near future, given the unprecedented level of government interventions in support of economies all over the globe during the current pandemic.
The number of SWFs and their assets (foreign and domestic) under management has grown continuously in both developed and developing countries, across all continents. A 2016 report by PWC, entitled “Sovereign investors 2020: A growing force,” identifies SWFs as inevitably major players in global markets in the years to come. However, because these funds have become engulfed in the unprecedented worldwide crisis resulting from the COVID-19 pandemic, we have yet to fully understand them, their motivations (Calluzzo, Dong, & Godsell, 2017; Carney, 2018), asset allocation, overall behavior and strategy, firm impact (Aguilera, Capapé, & Santiso, 2016; Boubaker, Boubakri, Grira, & Guizani, 2018) and economy-level impact (Karolyi & Liao, 2017; Megginson & Gao, 2020). In a recent review of the literature on SWFs, Fotak, Gao, & Megginson (2017) note that “extant research has failed to provide answers to some of the most fundamental, and most important, questions surrounding SWFs. Foremost is the question whether SWFs can truly become vehicles financing economic development, to the benefit of the populations of the sponsoring countries.” This is a legitimate question given the current situation.
For this Special Issue, we invite high-quality theoretical and empirical research that develops a better understanding of SWFs, their objectives, level of activism, and effects, within a globalization framework “central to the field of international business” (Lundan, 2018). Most importantly, we are focused on “forward-looking” research that will analyze past trends and events to sharpen our understanding of the evolving future role of SWFs. We believe the topic of SWFs remains integral to the understanding of international business, because of 1) the scale of the funds, 2) their fundamental role in providing a release valve to global imbalances in trade and financial flows, and 3) core issues embedded in their existence that touch upon the impact of cross-border financial flows on domestic firms and markets, as well as the political economy considerations that are inevitably linked to the sovereign nature of these funds.
To this end, we are interested in papers that employ rich new datasets, and exploit exogenous shocks to the economy to investigate the evolution of SWFs. The following are some select, non-comprehensive, examples of possible research topics:
1. The evolution of SWFs over time: Given current COVID-related fiscal shocks, will SWFs increase their domestic asset allocations? If so, could this lead to instability in foreign (mostly Western) markets as they divest abroad? How does an SWF retrenchment affect foreign firms in which they own stakes?
2. How can we distinguish between the political and financial/economic objectives of SWFs? Specifically, are SWFs based in autocratic countries more resilient to pressures to retreat domestically? For example, Norway is increasing domestic dividend distributions, but the Public Investment Fund of Saudi Arabia (PIF) is going on a shopping spree, completely oblivious to the domestic fiscal crisis. Is PIF an isolated case, or do non-democratic SWFs have an advantage when it comes to their ability to buy assets cheaply during a downturn?
3. Anecdotal evidence suggests that SWFs outperformed over the 2008-2010 period with financial sector investments. What was their impact worldwide?
4. How can SWFs adjust their asset allocation strategies to minimize the impact of revenue reduction, for example, following the oil price collapse this year?
5. Recent trends have seen SWFs enter novel markets. In particular, we note an increase in corporate lending, infrastructure, and, most notably, early-stage investing. SWFs are increasingly playing a role in government-sponsored venture capital incubators. Are these part of an attempt to diversify revenue streams, or are they representative of long-term trends that will shape the future of SWFs?
6. We observe increasing reports of SWF lending directly to firms. How do SWF loans compare to private sector loans? Do these loans lead to a previously unexplored channel of influence?
7. What role do SWFs play in infrastructure financing? Are they in a position to make up for private sector shortfalls?
Papers for the special issue should be submitted at https://mc.manuscriptcentral.com/jibp. For information or questions about the Special Issue, please contact us at [log in to unmask], using the subject heading: “SI and Conference on SWFs.”
There will be a one-day academic conference on the topic to be co-organized by the Moore School of Business, University of South Carolina and Graduate School of Business Administration, Hitotsubashi University in Tokyo, Japan, on March 11, 2022. Although we are hoping that we will proceed with an in-person conference, we may have to change our plan depending on the progress of the COVID-19 pandemic and travel restrictions to Japan. The conference will provide an opportunity for authors whose works are invited for resubmission to the JIBP Special Issue on “Sovereign Wealth Funds and Capitalist States: Issues and Challenges” to develop their papers to meet JIBP high-quality standards. Renowned scholars working on this topic have confirmed their attendance at the workshop and will serve as discussants. The time allocated to each paper is 25 minutes for the presenter, 20 minutes for the discussant, and 10 minutes for the audience.
The conference will include a keynote speech by Professor William Megginson, who is Professor and Price Chair in Finance at the University of Oklahoma’s Michael F. Price College of Business.
IMPORTANT DEADLINES
JIBP general submission deadline: November 5, 2021
Publication of Special Issue: Fall 2022
Aguilera, R. V., Capapé, J., & Santiso, J. 2016. Sovereign wealth funds: A strategic governance view. Academy of Management Perspectives, 30(1): 5–23.
Boubaker, S., Boubakri, N., Grira, J., & Guizani, A. 2018. Sovereign wealth funds and equity pricing: Evidence from implied cost of equity of publicly traded targets. Journal of Corporate Finance, 53: 202–224.
Calluzzo, P., Dong, G. N., & Godsell, D. 2017. Sovereign wealth fund investments and the US political process. Journal of International Business Studies, 48(2): 222–243.
Cuervo-Cazurra, A. 2018. Thanks but no thanks: State-owned multinationals from emerging markets and host country policies. Journal of International Business Policy, 1: 128–156.
Evenett, S. J. 2019. Protectionism, state discrimination, and international business since the onset of the Global Financial Crisis. Journal of International Business Policy, 2(1): 9–36.
Fotak, V., Gao, X., & Megginson, W. L. 2017. A financial force to be reckoned with? An overview of sovereign wealth funds. The Oxford Handbook of Sovereign Wealth Funds, 16.
Grira, J. 2019. Back to government ownership: The Sovereign Wealth Funds phenomenon. Finance Research Letters, forthcoming.
Megginson, W. L., & Fotak, V. 2015. Rise of the fiduciary state: A survey of Sovereign Wealth Fund research. Journal of Economic Surveys, 29(4): 733–778.
Megginson, W. L., & Fotak, V. 2020. Government equity investments in coronavirus rescues: Why, how, when? SSRN Electronic Journal, 10.2139/ssrn.3561282.
Megginson, W.L., & Gao, X. 2020. The state of research on sovereign wealth funds. Global Finance Journal, 44, 100466.
Park, R. J., Xu, S., In, F., & Ji, P. I. 2019. The long-term impact of sovereign wealth fund investments, Journal of Financial Markets, 45: 115–138.
About the Guest Editors
Narjess Boubakri (American University of Sharjah, UAE)
Narjess Boubakri is the first Bank of Sharjah Endowed Chair in Banking and finance professor at the School of Business Administration of the American University of Sharjah. She is currently the Dean of the School of Business Administration.
She received her Ph.D. in Finance from Laval University (2000). Her main research interests are in privatization, corporate governance, empirical finance, international finance, economic reforms, and political economy. Professor Boubakri has also published in the area of Corporate Social responsibility, Islamic Finance, and Sovereign Wealth Funds.
Professor Boubakri has authored numerous articles and book chapters. Her research has been published in some of the most prestigious peer-reviewed journals, including the Journal of Finance, Journal of Financial Economics, Journal of International Business Studies, and Journal of Corporate Finance. She is the Finance Editor of the Quarterly Review of Economics and Finance, Associate Editor of the Journal of Corporate Finance, and Chief Editor of Finance Research Letters. She sits as subject editor on the editorial boards of Emerging Markets Review, Journal of International Financial Markets Institutions and Money, and Journal of International Business and Policy.
Veljko Fotak (University at Buffalo)
Veljko Fotak is an Associate Professor of Finance at the University at Buffalo, and a Fellow at the Sovereign Investment Lab, Paolo Baffi Centre on Central Banking and Financial Regulation, Bocconi University.
Veljko’s research is focused on international corporate finance, with a particular emphasis on state capitalism, sovereign wealth funds, and, in broader terms, the impact of government ownership on firm behavior, performance, and valuation. Veljko’s research has been published in leading academic journals, including the Journal of Financial Economics and the Review of Financial Studies, and has been cited in The Wall Street Journal, the Financial Times, the New York Post, on Bloomberg, and in other media outlets. He teaches courses on corporate finance, global economics, and international financial management for both undergraduate and graduate students. He also serves as an Associate Editor at the Journal of Corporate Finance.
Veljko earned a B.S. degree in Business Administration, an MBA with a concentration in Finance, and an M.S. in Applied Statistics from the Rochester Institute of Technology in Rochester, NY, and a Ph.D. in Finance from the University of Oklahoma.
Omrane Guedhami (University of South Carolina, USA)
Dr. Omrane Guedhami is a Moore Research Fellow and a Professor of International Finance at the Moore School of Business at the University of South Carolina. Dr. Guedhami earned his M.Sc. in finance from HEC Montreal in 1998, and received his Ph.D. in finance from Laval University in 2003.
Dr. Guedhami’s research interests are international, covering corporate
governance, privatization, national culture, and corporate social
responsibility. Specifically, his research examines the determinants of post-privatization
performance changes, the impact of privatization on corporate governance and
ownership structure, the determinants of ownership structure of newly
privatized and public firms, and the role of large blockholders and tax
enforcement in corporate governance. His research on corporate social
responsibility (CSR) focuses on the determinants and economic consequences of
firms’ CSR initiatives. His research has been published in leading academic
journals, including the Journal of Financial Economics, Journal
of Financial and Quantitative Analysis, Accounting Review, Journal of
Accounting Research, the Journal of Accounting and Economics, Management
Science, Contemporary Accounting Research, Review of
Finance, Journal of International Business Studies, Accounting,
Organization, and Society, and Journal of Business Ethics,
among others.
He has received numerous research distinctions and prestigious awards, including the 2003 Best Dissertation in International Finance Case Award sponsored by Indiana University Center for International Business Education and Research and Financial Management Association International, the Best Paper Award in International Finance at the 2007 Eastern Finance Association Meeting, the 2011 Moskowitz Prize for Socially Responsible Investing (Center for Responsible Business, Haas School of Business, University of California, Berkeley), the Best Paper Award at the 2011 China Goes Global Conference (Harvard Kennedy School), the Best Paper Award in Financial Institutions at the 2012 Southwestern Finance Association Conference, the Outstanding Paper Award for “Collectivism and Corruption in Bank Lending,” the Outstanding Paper Award at the 2012 and 2013 International Conference on Asia-Pacific Financial Markets, and the 2015 Emerald Citations of Excellence Award. In April 2011, he received the Rising Star Award from the Office of Research at the University of South Carolina. His research is funded by Canada’s Social Sciences and Humanities Research Council.
Dr. Guedhami taught at Laval University and Memorial University of Newfoundland
before joining the Moore School of Business in 2007. He teaches financial
management, investments, international corporate governance, and international
finance at the undergraduate, graduate, and doctoral levels. He is the
coordinating director of the Ph.D. program in International Finance.
Dr. Guedhami is a member of the editorial boards
of major journals, such as Contemporary Accounting Research and
the Journal of International Business Studies, and serves as
a Section Editor at the Journal of Business Ethics, Corporate Governance: An International
Review, Journal of Applied Accounting
Research, Journal of International
Accounting Research, Emerging Markets
Review, and Associate Editor of the Journal of Corporate Finance and
Journal of Financial Stability.
Yukihiro Yasuda (Hitotsubashi University, Japan)
Yukihiro Yasuda is a Professor at the Graduate School of Business
Administration at Hitotsubashi University in Japan.
The focus of his research is bank lending, bank regulation, corporate governance, and firm disclosure. He has published in finance and related journals, such as Journal of Financial Intermediation, Small Business Economics, Journal of Banking and Finance, Journal of Financial Stability, and Journal of the Japanese and International Economies.
Dr. Yasuda's teaching experience includes undergraduate and MBA courses and Ph.D. seminars in the area of corporate finance.