Open AccessSovereign Wealth Funds’ Affiliation and Acquisition Premium: Evidence from the Asia-Pacific Region
Author(s) -
Ali Awais Khalid,
Ghulame Rubbaniy,
Muhammad Faisal Rizwan,
Hassan Chaudhry
Publication year - 2019
Publication title -
the lahore journal of business
Language(s) - English
Resource type - Journals
ISSN - 2223-0025
DOI - 10.35536/ljb.2019.v8.i1.a2
Subject(s) - business , sovereign wealth fund , negotiation , china , bargaining power , monetary economics , economics , market economy , incentive , geography , political science , law , microeconomics , archaeology
This study aims to extend the signaling theory, by offering the buy-sidesovereign wealth fund’s (SWF) affiliation as a signal of the acquisition premium.Using the mergers and acquisitions (M&As) deals’ data from Asia-Pacific, over theperiod from 2000-2017, the results reveal that the effect of buy-side SWF’s affiliation,on the acquisition premium of target firms is negative, and statistically significantin the North Asian region. Our cross-country analysis shows a negativelysignificant effect of the buy-side SWF’s affiliation on the acquisition premium inChina. The findings of our sectoral analysis report a significantly adverse effect ofSWF’s affiliation on the acquisition premium in the energy and cyclical goods sector.This suggests that the SWFs are likely to be more influential in M&As deals that areconducted in the strategic sectors. Our findings demonstrate that the buy-sideSWF’s affiliation can be used as a signal of quality. That is to say that this affiliationincreases the bargaining power of buyers to reduce the acquisition premium fortargets. The findings are particularly important for the managers of firms managingSWFs’ investments, as they can negotiate better deals with the targets due to themanagers’ affiliation with the SWFs.