We investigate the impact of political risk on the investment decisions of sovereign wealth funds (SWFs). Using an international sample of 302 targets involved in 427 SWFs' deals, we find that political risk matters in determining SWFs' portfolio strategies. Among the four dimensions of political risk, we show that conflicts and democratic tendencies are the main components that explain variations in SWF behaviour, whereas the quality of institutions and government action matter less. Our results are robust to a battery of sensitivity tests, alternative model specifications, subsample analysis, and cultural bias.
|Journal||International Review of Financial Analysis|
|Publication status||Published - May 2022|
- Democratic tendencies
- Political risk
- Quality of institutions
- Sovereign wealth funds