Determinants of sovereign wealth fund governance

Abstract

As sovereign wealth funds (SWFs) have become large and influential investors, scholars and media have given increased attention to these funds. Apprehensions about their investment motives have made these funds a topic of controversy making the study of their governance an important topic in the literature. The need to understand SWF governance motivated this study where I aim to answer the question what determines SWF governance. By analyzing data of 63 SWFs in 40 countries, I document significant evidence regarding the impact of national culture, legal/juridical system, and political environment on SWF governance. Even when controlling for Hofstede’s cultural characteristics, I find evidence that poorer SWF governance is associated with more religious societies, state-owned banks, and political corruption

while better SWF governance is associated with an English legal origin, higher judicial effectiveness, and democracy. These results are consistent with the evidence on corporate governance. This study has important implications for policy makers, investment managers, and capital-market participants alike.