William L Megginson

University of Oklahoma | ou

Sovereign wealth funds (SWFs) have over $11.5 trillion in assets under management as of February 2023. Most of these 176 funds are sponsored by non-Western countries and their growth has made SWFs important international investors, particularly in private equity funding. We first define SWFs, then discuss their evolution into today’s categories of...

This handbook presents the latest theoretical and applied thinking on state capitalism, i.e., the institutional, policy, and ownership arrangements that reflect the direct influence of the state on the economy and firm behavior. It is a timely volume given the worldwide changes regarding the role of the state in the economy. Starting in the 1980s,...

The COVID-19 pandemic has led to economic and health crises (“twin crises”) worldwide. Using a sample of firms from 73 countries over the period January to December 2020, we examine stock price reactions of multinational corporations (MNCs) and purely domestic companies (DCs) to the crisis. We find that, on average, MNCs suffer a significantly larg...

This handbook presents the latest theoretical and applied thinking on state capitalism, i.e., the institutional, policy, and ownership arrangements that reflect the direct influence of the state on the economy and firm behavior. It is a timely volume given the worldwide changes regarding the role of the state in the economy. Starting in the 1980s,...

We review and bridge the literature on the internationalization of state-owned firms and sovereign wealth funds to provide a novel understanding of how government ownership affects foreign investments in three ways. First, we explain how state-owned firms and funds behave differently from private ones because they need to balance governments' nonbu...

We study the link between industrial policy and asset prices by using the Made in China 2025 industrial policy, announced in May 2015, as an external shock. We track Chinese firms and U.S. firms in ten high-tech industries targeted by the policy. In the short run, stock prices, measured by cumulative abnormal returns (CARs), increase significantly...

We review and bridge the literature on the internationalization of state-owned firms and sovereign wealth funds to provide a novel understanding of how governments' nonbusiness objectives affect foreign investments. We explain how governments as foreign investors behave differently from private ones because they need to balance politicians' nonbusi...

State-owned investors (SOIs), including sovereign wealth funds and public pension funds, have $27 trillion in assets under management in 2020, making these funds the third largest group of asset owners globally. SOIs have become the largest and are among the most important private equity investors, and they are key investors in other alternative as...

Using manually collected data on foreign owners from 39 international jurisdictions for the 2010–2018 period, we find that foreign ownership significantly reduces corporate excess perquisite consumption in Chinese-listed companies. We take the instrumental variable approach and confirm this causal relationship. Investors from jurisdictions with str...

State-owned investors (SOIs), including sovereign wealth funds and public pension funds, have $27 trillion in assets under management in 2020, making these funds the third largest group of asset owners globally. SOIs have become the largest and most important private equity investors and are key investors in other alternative asset investments such...

By employing a novel, hand-collected sample of withdrawn and completed share issue privatizations, we show that both groups undergo comparable restructuring processes over the 3 years preceding the event. We employ matching procedures to explicitly control for the restructuring effect, isolating the effect of the ownership transfer from state to pr...

Previous studies show that profitability does not improve after share issue privatization (SIP) in China. We explore the possibility that the positive privatization effect can be overwhelmed by a negative listing effect, leading to an overall negative or insignificant SIP profitability change. Using the difference-in-differences approach with vario...

The new global economic and political environment brings new challenges to sovereign wealth funds (SWFs)and forces them to adopt new strategies to adapt to the environmental changes. This study is a sequel to Fotak, Gao, and Megginson (2017). We focus on the newly produced research on SWFs and confirm the impact of new environmental changes on SWFs...

In April 2012, Delta Air Lines (Delta) purchased a mothballed oil refinery. We use this case to illustrate when, how, and why vertical integration (VI) can hedge input price risk. First, we show that stockholders and creditors expected the move to create wealth. Consistent with their predictions, Delta's exposure to refining margins, cash flow vola...

Motivated by the recent rise of state capitalism, this paper investigates the effects of government ownership on market valuations across a sample of publicly listed corporations from East Asia. We find strong, robust evidence that government-owned firms exhibit higher market valuation than non-government-owned firms, but the relation is not linear...

The global Islamic finance industry is estimated to be worth approximately US$1.4 trillion, and has grown much faster than conventional finance over the past four decades. Although 80% of this industry is concentrated in the Middle East, North Africa, East Asia, and the Pacific, it is active in 59 countries across all continents. Formally launched...

This study summarizes the economic and political developments relating to privatization, state capitalism, and state ownership of business since 2000 and then surveys the extensive recent research examining these issues empirically. Through the early 21st century, there was an unambiguous global trend towards reducing government ownership of busine...

Using a sample of 1593 US firms that go public between 1990 and 2007, we find that VC-backed IPOs experience less financial distress risk post-offering than do comparable non-VC-backed IPOs. After controlling for endogeneity, we find this is related to the screening done by VC-investors, who select firms with lower risk of financial distress and by...

We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year-end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand-alone wealth management funds; we both survey this research and show th...

This paper investigates the relation between state ownership and corporate investment and tests theoretical channels of influence. Using a matched panel of 624 European firms, we find that state ownership curtails firms’ responsiveness to investment opportunities. With increasing government ownership, investment becomes more sensitive to internal f...

We document significant post-share issue privatization (SIP) increases in profitability of divested Chinese state-owned companies, once the negative IPO listing effect is accounted for. This contradicts previous studies showing that profitability declines after privatization. We employ a triple difference approach and examine 204 Chinese SIPs from...

We employ a unique sample of 5000 outside directorships held by German executive bank directors over 1993-2015 to examine whether these directorships proxy reputational capital and/or bankers’ private information. We exploit various circumstances of executive directors’ appointments and bank performance with bank-fixed-effect and difference-in-diff...

Sovereign Wealth Funds (SWFs) represent a new form of investment organizational structure and have grown to over $5.7 trillion assets under management by February 2016, making them a financial force potentially worth reckoning with in international financial markets. This article starts with a brief introduction of the 35 funds that meet our defini...

This paper argues that the documented post-share issue privatization (SIP) decline in profitability of divested Chinese companies is not evidence per se that China's SIP program is ineffective or unsuccessful. Instead, the positive privatization effect is often outweighed by a negative listing effect. We employ a triple difference approach to separ...

This paper argues that the documented post-share issue privatization (SIP) decline in profitability is not evidence per se that China’s SIP program is ineffective or unsuccessful. Instead, the positive privatization effect is often outweighed by a negative listing effect. We employ a triple difference approach to separate these two effects, and exa...

The economic role of governments has, of course, been evolving rapidly over the past several decades. States have always and everywhere regulated private businesses to a greater or lesser degree, but many also chose to enter business as owners. Mostly from the Great Depression onwards, governments around the world launched (or nationalized) compani...

This paper argues that the documented post-share issue privatization (SIP) decline in profitability of divested Chinese companies is not evidence per se that China’s SIP program is ineffective or unsuccessful. Instead, the positive privatization effect is often outweighed by a negative listing effect. We employ a triple difference approach to separ...

We study the relation between state ownership and cash holdings in China’s share-issue privatized firms from 2000 to 2012. We find that the level of cash holdings increases as state ownership declines. For the average firm in our sample, a 10 percentage-point decline in state ownership leads to an increase of about RMB 55 million in cash holdings....

In this study, we employ the World Bank Enterprise Survey (WBES) data collected in 2002, 2005, and 2009 for 21,499 firms from 27 Eastern European and Central Asian countries to examine firm-level growth constraints faced by privatized firms versus those faced by the originally (de novo) private firms. We find that the de novo firms experience signi...

We find that the major determinants of the dividend payout premium of firms after privatization are improved firm operating performance and a prevalence of agency costs which are mitigated by higher pay-outs. We examine up to 74,562 firm-years (up to 336 privatized and 5,625 non-privatized firms) across 26 countries. The privatized firm payout prem...

Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study resolves both puzzles. Modeling endogeneity of firm-underwriter choice using a two-sided matching approach, we provide strong evidence...

We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year-end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand-alone wealth management funds; we both survey this research and show th...

This paper addresses the difficulties of accurately defining a SWF, discusses the evolution of the original SWFs from stabilization to wealth funds, and examines how SWFs are organized and funded. We also detail the key measures developed to assess the operational and informational transparency and institutional quality of different fund by compari...

Using a sample of 1,590 purchases of stock by sovereign wealth funds (SWFs) in listed firms in 78 target countries between 1985 and 2011, we study the country-level determinants of SWF cross-border investment. We find that SWFs from countries with high levels of openness and economic development, but with less developed local capital markets, will...

This article details major privatization deals executed during 2012 and the first half of 2013 and surveys trends shaping the privatization landscape worldwide. We document several important facts, including the following: (1) Governments raised $186.8 billion (€145.9 billion) through privatization sales during 2012, nearly twice the 2011 figures [...

We study the financial characteristics of structured finance (SF), either project finance loans or asset securitization bonds, and straight debt finance (SDF) – corporate bonds – transactions by means of a comparative analysis of ex ante credit spreads for a large cross-section of 24,435 Western European loans and bonds during the 2000-2011 period....

Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study resolves both puzzles. Modeling endogeneity of firm-underwriter choice using a two-sided matching approach, we provide strong evidence...

We document that announcement-period abnormal returns of sovereign wealth fund (SWF) equity investments in publicly traded firms are positive but lower than those of comparable private investments. Further, SWF investment targets suffer from declining return on assets and sales growth over the following three years. Our results are robust to contro...

We study the relation between state ownership and cash holdings in China’s share-issue privatized firms from 1993 to 2007. We find that the level of cash holdings declines as state ownership increases. This negative relation is attributable to the soft-budget constraint (SBC) inherent in state ownership. The Chinese financial system is dominated by...

This article details major privatization deals executed during 2011 and the first half of 2012 and surveys trends shaping the privatization landscape worldwide. We document several important facts, including the following: Governments raised only $94.4 billion (€68.2 billion) through privatization sales during 2011, less than half the record $213.6...

This article details major privatization deals executed during 2010 and the first half of 2011 and surveys trends shaping the privatization landscape worldwide. We document several important facts, including the following: Governments raised a record $213.6 billion (€159.9 billion) through privatization sales of common stock in state owned enterpri...

We investigate the impact of government share ownership on the cost of corporate debt. Government ownership might carry an implicit debt guarantee that reduces the chance of default and, hence, leads to a lower cost of debt.On the other hand, government ownership could lead to a higher cost of debt if this implicit debt guarantee increases moral ha...

The question of whether optimal provision of these services comes mainly from established relationships between banks and client firms or can result from arms'-length market transactions has been the topic of considerable recent debate. This discussion has paralleled the debate in the commercial banking literature on the “specialness” of banks and...

We examine the long-standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market-making services from Lehman. Equity underwriting clients experienced an abnormal return of around –5%, on average, in the 7 day...

Underwriter reputation and compensation are both topics that have received considerable attention but the question of whether underwriter fee structures provide adequate incentives for investment banks to build and maintain their reputation remains unresolved. We examine this question for equity underwriting and find that underwriters with higher r...

We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards, and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than self-interested policies. Two-tiered boards adopt institut...

This article details major privatization deals executed during 2010 and the first half of 2011 and surveys trends shaping the privatization landscape worldwide. We document several important facts, including the following: (1) Governments raised a record $213.6 billion (€159.9 billion) through privatization sales of common stock in state owned ente...

Recent shifts in the global distribution of production and wealth have led to the rise of Sovereign Wealth Funds (SWFs), a new class of investment vehicles owned and operated by national governments, but guided in their investment policies at least partly by commercial principles. Using a sample of 802 investments by 18 SWFs through November 2009,...

Do employment protection laws hinder privatization? Using privatization deals in fourteen European countries from 1977-2003 and within-country variation in employment protection laws, we find that stringent employment protection laws significantly deter privatization. The fear of job cuts apparently leads organized labor in the state-owned enterpri...

We explore whether government ownership affects the cost of debt using a sample of fully and partially privatized companies. On average across firms, a one-percentage-point decrease in government ownership is associated with an increase in the credit spread, used as a proxy for the cost of debt, by three-quarters of a basis point. However, fully pr...

Do employment protection laws hinder privatization? Using privatization deals in fourteen European countries from 1977-2003 and within-country variation in employment protection laws, we find that stringent employment protection laws significantly deter privatization. The fear of job cuts apparently leads organized labor in the state-owned enterpri...

In late 2008, as financial markets were crashing, the Vale Columbia Center on Sustainable International Investment launched the Columbia FDI Perspectives. The first Perspective, entitled “The FDI recession has begun,” correctly forecast an FDI recession in the following year. From that first Perspective in late 2008 to the end of 2010, the series p...

We examine the long-standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market-making services from Lehman. Equity underwriting clients experienced an abnormal return of around -5%, on average, in the seven...

Frequently the largest equity offerings in the world, share-issue privatizations (SIPs) are sometimes conducted entirely on domestic exchanges and are sometimes cross-listed on foreign exchanges. In this paper, we examine the determinants of a privatizing government’s actions regarding whether and where to cross-list. Using data from 821 SIPs from...

Recent evidences indicate that privatization leads to enormous benefits to society almost without undesirable costs. However, stakeholders of privatization seem not to satisfy the resulting performance of privatized firms. Using data from 202 firms privatized from 37 countries during the period 1980-2002, we follow long-run operating performance of...

Several signaling models predict that firms underprice their initial offerings of equity deeply so that they can subsequently issue seasoned equity at more favorable terms. We test the implications of those models. We find a positive relation between IPO underpricing and the possibility of and the size of subsequent seasoned equity offerings. These...

This paper investigates the long-run stock returns of privatization initial public offering (IPO) firms using a sample of 241 privatization IPOs from 42 countries during the period 1981-2003. We compare one-, three-, and five-year holding period returns of privatization IPOs to those of the domestic stock market indices and to size and size- and bo...

This paper summarizes research examining how privatization programs implemented by governments over the past three decades have changed the size and efficiency of global financial markets, altered the practice of corporate finance in economies that experienced large privatizations, and impacted the returns earned by individual investors who purchas...

French law mandates that employees of large publicly listed companies be allowed to elect two types of directors to represent employees. First, partially privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Second, employee-shareholders in any public company...

This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005,...

Recent evidences indicate that privatization leads to enormous benefits to society almost without undesirable costs. However, stakeholders of privatization seem not to satisfy the resulting performance of privatized firms. Using data from 202 firms privatized from 37 countries during the period 1980-2002, we follow long-run operating performance of...

Several signaling models predict that firms underprice their initial offerings of equity deeply so that they can subsequently issue seasoned equity at more favorable terms. We test the implications of those models. We find a positive relation between IPO underpricing and the possibility of and the size of subsequent seasoned equity offerings. These...

This study presents the first comprehensive compilation of the number of people around the world owning shares voluntarily. We document that at least 317 million people in 70 countries (24 developed and 46 emerging market nations) invest in equity of publically listed companies or mutual funds. Accounting for contributors of voluntarily pension sch...

IntroductionRecent Trends in the Private Equity IndustryTraditional Fund-Raising MethodsNontraditional Fund-Raising Methods Private Equity IPOs: Performance and Implications for the FutureSovereign Wealth Funds Complementing and Substituting for Private Equity InvestmentsConclusion NotesAbout the Authors

This study presents the first comprehensive compilation of the number of people around the world who own shares directly and indirectly. We document that at least 310 million people in 59 countries (24 developed and 35 emerging market nations) own stock directly [Table 1]. Nearly 173 million of these investors live in countries with developed stock...

We investigate the impact that the political connections of publicly traded firms have on their performance and risk-taking. Using a long-term event study covering a sample of 234 politically connected firms headquartered in 12 developed and 11 developing countries over the period 1989 to 2003, we find that firms increase their performance and risk...

We study dividend policies and dividend flexibility and use the annual abnormal return methodology to investigate the impact of more or less flexible policies for stock returns. We focus on the European Union which accommodates two corporate governance systems. We show that common law companies focus on cash dividends while civil law companies are...

We measure flexibility of dividend policy and study its impact on abnormal shareholders' returns in the European Union. When we use relative repurchase frequency and relative repurchase amounts as a measure of flexibility, civil law companies are more flexible. A more frequent use of repurchases does not increase company value, while persevering in...