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A REVIEW OF THE INTERNATIONALIZATION OF STATE-OWNED FIRMS AND
SOVEREIGN WEALTH FUNDS: GOVERNMENTS NONBUSINESS OBJECTIVES AND
DISCREET POWER *
Alvaro CUERVO-CAZURRA
Northeastern University, D’Amore-McKim School of Business
360 Huntington Avenue, 313 Hayden Hall, Boston, MA 02115-5000, USA
Phone: +1-617-373-6568, email: a.cuervocazurra@neu.edu
Anna GROSMAN
Loughborough University London
3 Lesney Avenue, Here East, Queen Elizabeth Olympic Park, London E20 3BS, UK
Phone: +44 203 805 1307, email: a.grosman@lboro.ac.uk
William L. MEGGINSON
The University of Oklahoma, Michael F. Price College of Business
307 W. Brooks, Suite 205B, Norman, OK 73019, USA
Tel.: +1 (405) 325-2058. e-mail: wmegginson@ou.edu
Visiting Professor, University of International Business & Economics (Beijing)
November 4, 2021
Journal of International Business Studies, Accepted Version
Citation:
Cuervo-Cazurra, A., Grosman, A., & Megginson, W. L. 2022. A review of the internationalization of
state-owned firms and sovereign wealth funds: Governments nonbusiness objectives and discreet power.
Journal of International Business Studies
*We are thankful for the constructive and insightful comments on previous versions of the article provided by Editor Lemma W.
Senbet, three anonymous reviewers, Gabriel Benito, Luc Bernier, Bernardo Bortolotti, Veljko Fotak, Xuechen Gao, Birgitte
Grøgaard, Omrane Guedhami, Maria Illieva, April Knill, Sergio Lazzarini, Summer Liu, Stefano Lugo, Asif Malik, Aldo
Musacchio, Ilya Okhmatovskiy, Andrea Paltrinieri, Geoffrey Wood, and participants at the Academy of International Business
conferences in 2019 and 2020. We are also grateful for the advice of Ilya Okhmatovskiy relating to cross-border acquisitions of
state-owned enterprises and Diego Lopez and Daniel Brett of Global SWF relating to empirical evidence on sovereign wealth funds
and public pension funds. Cuervo-Cazurra thanks the Lloyd Mullin Research Fellowship for financial support.
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A REVIEW OF THE INTERNATIONALIZATION OF STATE-OWNED FIRMS AND
SOVEREIGN WEALTH FUNDS: GOVERNMENTS NONBUSINESS OBJECTIVES AND
DISCREET POWER
Abstract: 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’ nonbusiness objectives and firms’ business goals.
This results in competing arguments on whether the government helps or hinders internationalization.
Building on the review, we provide suggestions as to how to extend research topics and theories of the firm
by incorporating these nonbusiness objectives in the internationalization decision. Finally, we capture how
governments may use state-owned multinationals and sovereign wealth funds to nudge host country
governments by introducing the concept of discreet power, outlining the beginning of a unified approach
to how governments use their foreign investments to achieve nonbusiness goals.
Keywords: state-owned enterprises, sovereign wealth funds, government ownership, firm’s objectives,
internationalization, state capitalism, international finance, international business
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“Saudi Arabia is selling Canadian assets as the kingdom escalates its response to Ottawa’s criticism of the arrest of a
female activist. The Saudi central bank and state pension funds have instructed their overseas asset managers to
dispose of their Canadian equities, bonds and cash holdings […] Saudi Arabia […] halted flights by state-owned Saudi
Arabian Airlines to Canada.” (Kerr, 2018)
INTRODUCTION
There has been a resurgence of state capitalism in international business, through which
governments are increasingly becoming foreign investors. The 1980s and 1990s were a period of
retrenchment for state capitalism as communist countries transitioned towards capitalism, and advanced
and developing economies underwent deregulation and privatization (Megginson & Netter, 2001).
However, despite these processes, governments continue to be significant investors. On the one hand, state-
owned firms continue to exist and have grown, even if governments are no longer the sole owners. Thus,
among the 100 largest publicly traded firms, 25 are state-owned, accounting for USD4.3 trillion in total
revenues (Fortune, 2020). On the other hand, governments have increasingly created and funded sovereign
wealth funds, which have undertaken a global investment spree. The top ten sovereign wealth funds have
USD6.7 trillion in assets under management (Global SWF, 2020).
However, although governments own both state-owned multinationals and sovereign wealth funds
and can coordinate their behavior, as illustrated in the opening quote, research has studied these firms
separately, creating a theoretical gap. Studies on state-owned multinationals focus on their foreign direct
investments, usually appear in international business journals, and tend to study country and entry mode
selection (Cuervo-Cazurra, Inkpen, Musacchio, & Ramaswamy, 2014; Cuervo-Cazurra & Li, 2021), while
analyses of sovereign wealth funds focus on their foreign portfolio investments, are commonly published
in finance and economics journals, and tend to study profitability (Bortolotti, Fotak, & Megginson, 2015;
Dewenter, Han, & Malatesta, 2010). Recent research has initiated a cross-fertilization, for example
analyzing the implication of state ownership on stock returns in multinationals (Karolyi & Liao, 2017) or
country and entry mode selection of sovereign wealth funds (Bertoni & Lugo, 2013; Knill, Lee, & Mauck,
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2012). Despite this, most studies treat them as independent of one another, limiting the theorization on the
role of governments as foreign investors.
Hence, in this article, we bridge these two streams of research, which have operated in parallel, to
provide a novel understanding of how governments act as foreign investors. We explain how state-owned
entities differ from private ones in their internationalization because they need to balance politicians’
nonbusiness objectives and firms’ business goals. This results in competing arguments, with some
discussing restrictions on foreign expansion while others highlight support for foreign investments by
influencing host country governments. Thus, to capture how governments may use state-owned
multinationals and sovereign wealth funds to nudge host country governments, despite their differences in
the level of control over investee firms, we introduce the concept of discreet power as the beginning of a
unified approach to how governments use their foreign investments to achieve nonbusiness goals.
These ideas contribute to two lines of research: state ownership and internationalization. On the
one hand, foreign investments by state-owned multinationals and sovereign wealth funds question the
traditional theoretical justifications for firms’ state ownership as solving market imperfections and enabling
development (Lawson, 1994). Under this logic, governments should not invest abroad because addressing
those imperfections is the task of host country governments. Thus, their international expansion highlights
the need to consider politicians’ objectives. On the other hand, governments’ foreign investments question
the focus on profitability as the ultimate driver of internationalization (Buckley & Casson, 1985), as state-
owned entities also pursue nonbusiness objectives internationally (Cuervo-Cazurra et al., 2014). This
requires a rethinking of the theoretical predictions on the selection and management of foreign investments,
as governments may use state-owned multinationals and sovereign wealth funds as tools for achieving
nonbusiness objectives abroad by exercising discreet power. This concept also contributes to the literature
by providing a bridge between the soft and hard power concepts of political economy (Nye, 2004).
GOVERNMENTS AS INVESTORS
A Brief History of Governments as Investors
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State ownership and control of the economy have oscillated between reforms and reversals
(Cuervo-Cazurra, Gaur, & Singh, 2019). During much of the 20th century, governments were active
investors. The Great Depression and the Second World War led most governments in advanced countries
to become active investors to facilitate reconstruction. In communist countries, state ownership expanded,
driven by an ideology of state control of the means of production. Developing countries increased
government ownership of industries considered necessary to facilitate industrialization. Governments
created sovereign wealth funds to invest excess funds from natural resources (Aguilera, Capapé, & Santiso,
2016), while some state-owned firms became multinationals (Vernon, 1979).
The economic crises of the 1970s questioned the effectiveness of government ownership and state
control of the economy, resulting in large privatizations in the 1980s and 1990s. Even sectors considered
to be the exclusive realm of the state, such as utilities or defense, underwent privatization. Studies explained
the privatization objectives, decision, timing, and process (Megginson, Nash, Netter, & Poulsen, 2004) and
performance of the newly privatized firms (Boubakri & Cosset, 1998). However, many of these were partial
privatizations, with governments retaining stakes in firms considered strategic.
The 2000s led to another rethinking of state ownership. Governments in advanced markets
responded to the Great Recession of 2007-2009 by supporting and, in some cases, nationalizing firms
considered essential. Meanwhile, the success of the Chinese government in managing the recession and the
foreign expansion of its state-owned firms showed that state capitalism was again a viable development
model. Thus, the literature evolved from assuming that state ownership was harmful to considering its
positive effects (Grosman, Okhmatovskiy, & Wright, 2016; Mazzucato, 2011; Wright, Wood, Musacchio,
Okhmatovskiy, Grosman, & Doh, 2021). Studies on state-owned multinationals analyzed recent
phenomena such as state ownership diversity (Cuervo-Cazurra et al., 2014; Inoue, Lazzarini, & Musacchio,
2013).
Governments as Investors: Direct and Indirect Ownership
These processes generated a wide diversity of types of government ownership of firms, which Table
1 summarizes. We study the internationalization of two types of state-owned entities: state-owned firms
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and sovereign wealth funds. State-owned firms are enterprises over which the government has significant
ownership and control; even minority stakes allow the government to influence decisions (Chen,
Musacchio, & Li, 2019; Inoue et al., 2013). They are created by the state or emerge from the nationalization
of private firms. State-owned firms are, in some cases, grouped into state holding companies, such as
SASAC in China and Temasek in Singapore. Sovereign wealth funds are government investment vehicles
commonly funded by foreign exchange assets or natural resource wealth and managed separately from
official reserves (Kimmitt, 2008). They tend to invest in assets to obtain commercial returns (Balding,
2011). Their small investment stakes do not typically provide control over the invested firms, but they can
nevertheless exercise influence as active investors. We do not study public pension funds, whose main
source of funds is pension contributions and whose objectives are social, even if they invest abroad and in
some cases in private equity funds (Kimmitt, 2008; Preqin, 2017).
*** Insert Table 1 here ***
Governments at multiple levels can own both types of state entities. Among state-owned firms,
most companies owned by lower- tier governments are not international, but some are, like the automobile
manufacturer Volkswagen, which is part- owned by the German state of Lower Saxony. Among sovereign
wealth funds, the conventional view is that they are owned by the central government (hence the term
sovereign), but lower- level governments also own them, like the Alaska Permanent Fund Corporation.
Differences in Objectives of State and Private Investors: Business and Nonbusiness Goals
There are significant differences in goals between state and private investors. At the core of the
theory of the firm lies its objective function, which is maximizing profits or market returns (Friedman,
1988) and protecting shareholder rights (Shleifer & Vishny, 1997). These goals also apply to state-owned
entities. However, most state entities are charged with achieving additional nonbusiness goals that conflict
with profit maximization. For state-owned firms, nonbusiness goals include politically motivated
investments in innovation, employment, or social stability (Lazzarini, Mesquita, Monteiro, & Musacchio,
2020; Sun, Deng, & Wright, 2020). For sovereign wealth funds, nonbusiness goals include diversification
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of domestic markets, stabilization, sustainable investments for social goals, and protection from corrupt
elites (Bernstein, Lerner, & Schoar, 2013; Knill et al., 2012).
In Table 2, we clarify these differences in goals between private and state-owned investors. Our
view is that, rather than having a dichotomy of objectives, with private investors interested in business
objectives and state-owned ones in nonbusiness objectives, they differ in the relative importance of the
goals. Governments are not passive owners uninterested in performance, but rather active shareholders
seeking multiple objectives. For example, sovereign wealth funds target strategic industries (Nowacki &
Monk, 2017) and are used as part of governments’ external investments (Truman, 2007).
*** Insert Table 2 here ***
Differences in Corporate Governance of State and Private Investors
State-owned entities follow hybrid governance. The governance practices of state-owned entities
are usually considered deviations from the accepted standards for the governance of private firms (OECD,
2015a), and the recommendation is to make the governance of state-owned entities resemble as much as
possible the governance of private firms (Shleifer, 1998). However, state-owned entities are hybrid
organizations in their corporate governance, using elements of private corporate governance to enhance
monitoring with elements of public administrative governance to enhance accountability. They use
governance tools differently or employ additional instruments to develop a suitable corporate governance
structure (Okhmatovskiy, Grosman, & Sun, 2021). This hybrid governance is reflected in governance
guidelines, board structure, and untraditional governance mechanisms adopted by state-owned entities.
Guidelines. Guidelines for state-owned firms and sovereign wealth funds reflect the particularities
of government ownership. These differ in objectives from the codes of good governance for private firms,
which are usually designed to address the separation of ownership and control (Aguilera & Cuervo-Cazurra,
2004). State-owned firms can follow the Organization for Economic Co-operation and Development
(OECD) guidelines (OECD, 2015b). If they are publicly traded, they must adhere to listing regulations,
such as disclosure of ownership and executive compensation, board independence, and required board
structures (OECD, 2013). Sovereign wealth funds can follow corporate governance practices, commonly
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known as the Santiago Principles (IWGSWF, 2008). They are voluntary standards for investment practices,
corporate governance, transparency, and accountability.
Boards. The board of directors is a universal governance mechanism for advising and monitoring
managers (John & Senbet, 1998), but its composition and functions in state-owned entities differ from that
in private firms. In state-owned entities, board nominations are usually the government’s responsibility
(OECD, 2013), resulting in appointments without transparent and competitive selection procedures. Boards
are commonly composed of civil servants, tasked with pursuing the public interest, and increasingly,
independent directors. However, although the latter have incentives to generate financial results (Grosman,
Aguilera, & Wright, 2019), they still have indirect affiliations to politicians pursuing noneconomic
objectives (Menozzi, Gutiérrez Urtiaga, & Vannoni, 2012). These boards undergo frequent replacements
mirroring election cycles rather than performance (Kuzman, Talavera, & Bellos, 2018).
Boards of state-owned firms perform their functions differently to reflect the requirements of state
ownership. They monitor whether managerial actions are aligned both with the business goals and the
public mission of state-owned firms (Okhmatovskiy et al., 2021). Their resource provision function differs
because government support isolates them from financial pressure. Finally, their strategic function is
fulfilled directly by the state (OECD, 2018), which sometimes is suboptimal because it is biased by political
goals (Lazzarini & Musacchio, 2015).
Untraditional governance mechanisms. State-owned entities sometimes employ governance
mechanisms rarely used in private firms that enable the government to impose its preferences without
securing the agreement of other shareholders. Okhmatovskiy et al. (2021) highlight four mechanisms. First,
governments use performance contracts to establish expectations regarding outcomes that state-owned
firms commit to deliver (OECD, 2015a). These contracts provide boards with greater autonomy in decision-
making without sacrificing the goals of the government as a shareholder. Second, through loan agreements
from state-owned banks , governments are able to pursue a politically-driven industrial policy agenda.
Third, state-owned firms are under informal influence by government officials in matters ranging from
issuing permits to choosing suppliers for state-funded projects or providing support for internationalization.
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Finally, political elites influence managers of state entities through administrative mechanisms. For
example, in China, the influence of the Communist Party permeates economic and social activities, leading
Chinese state-owned entities to be called “hybrid business-political actors” (Lin & Milhaupt, 2013).
Governments as Foreign Investors
We study how these differences in objectives and governance of state and private investors affect
internationalization, helping advance the theorization of international business and state ownership through
cross-fertilization. By bringing insights from one topic to the other, we outline the beginning of a unified
theory of how governments use their foreign investments to achieve nonbusiness goals. This complements
previous studies that separately analyzed sovereign wealth funds (Aguilera et al., 2016; Megginson &
Fotak, 2015; Megginson & Gao, 2020) and state-owned multinationals (Cuervo-Cazurra et al., 2014; Rygh,
2019).
INTERNATIONALIZATION OF STATE-OWNED MULTINATIONALS AND SOVEREIGN
WEALTH FUNDS
The systematic review and analysis of the content of past studies on the internationalization of
state-owned firms and sovereign wealth funds reveal new insights on the role of governments’ nonbusiness
objectives. Online Appendix A provides the research design and lists the articles reviewed.
Evolution of the Literature and Phenomenon
The internationalization of state-owned firms. The literature on state-owned multinationals
evolves through three phases. It starts in the 1970s and 1980s with a few theoretical and interview-based
studies on the growing expansion of state-owned multinationals, usually from advanced economies
(Aharoni, 1982; Mazzolini, 1979). However, the extensive privatization processes of the 1990s redirect
interest toward the privatization of state-owned multinationals (Dewenter & Malatesta, 2001; Djankov &
Murrell, 2002). In the 2000s, there is a rediscovery of the topic, and by the late 2010s, there is a significant
expansion in the number and variety of studies. There is also a change from studying only state-owned
multinationals to comparing them to privately-owned multinationals, facilitating the identification of the
uniqueness in their behavior.
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This evolution of the literature reflects the transformation of state-owned firms. Table 3 illustrates
the evolution of state ownership in selected countries over 1970-2017. The general trend is a sharp decline
in state ownership between 1970 and 1995 and an increase in the 2010s. The most notable drop is among
transition economies, as expected from their move from communism to capitalism, but there is also a
significant drop elsewhere. Table 4 presents the top 25 publicly traded state-owned firms. The list is
dominated by Chinese firms, but there are state-owned firms from other countries, including advanced ones.
*** Insert Tables 3 and 4 here ***
The internationalization of sovereign wealth funds. Research on the internationalization of
sovereign wealth funds is limited and recent, with studies on this topic appearing only in the 2010s. One
reason is that, although some sovereign wealth funds were founded in the middle of the 20th century, most
were created only after 2000 (Aguilera et al., 2016). They have expanded abroad in search of diversification,
especially those from small economies unable to absorb surpluses. The investments have moved from
passive to active ones as governments intervene in global financial markets to seek political, social, and
financial objectives (Monk, 2011; Wood & Wright, 2015).
Although sovereign wealth funds were created more recently than state-owned firms, they have
grown much faster. Table 5 provides statistics on sovereign wealth funds and public pension funds by
country. China leads the ranking in terms of total assets under management, followed by Norway and Abu
Dhabi. Their growth is driven by the accumulation of wealth from natural resources, especially oil, and
foreign exchange reserves by central banks, especially after the 1998 East Asian financial crisis. Table 6
lists the 25 largest sovereign wealth funds, ranked by assets under management. The ranking is led by
Norway’s Government Pension Fund Global, China Investment Corporation, and the Abu Dhabi
Investment Authority. The listing shows great variety in the country of origin, creation date, and size.
Sovereign wealth funds are increasingly large investors in private equity, even if historically they
held portfolios primarily composed of public equities and debt. Sixty one percent of sovereign wealth funds
directly hold private equity in their portfolios (Preqin, 2017). This is driven by the search for higher returns
and a growing sophistication of funds (Nowacki & Monk, 2017). There are significant cross-country
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variations, however. Middle Eastern and Asian sovereign wealth funds account for the largest share of funds
investing in private equity, while none of the Latin American sovereign wealth funds invest in private equity
(Preqin, 2017). Investing in private equity also helps sovereign wealth funds achieve the mission of
developing their local economies. Some sovereign wealth funds were specifically created to coinvest in
private equity to help domestic firms abroad or attract long-term foreign capital into their home economies
(e.g., Bahrain’s Mumtalakat Holding). These two activities increasingly come together in bilateral
partnerships in which investments support targeted industries’ development (Nowacki & Monk, 2017).
*** Insert Tables 5 and 6 here ***
Building bridges. This reveals accelerating growth in the size and internationalization of both state-
owned multinationals and sovereign wealth funds. Our analysis suggests that national governments tend to
specialize in the vehicles they use to internationalize investments. Small and wealthy emerging countries
and advanced economies tend to invest in the rich world primarily through sovereign wealth funds. In
contrast, large emerging economies seem to channel their international investments through state-owned
firms to other emerging countries or occasionally advanced economies. China seems to be an exception,
using both state-owned firms and sovereign wealth funds to invest everywhere.
Theoretical Foundations
The internationalization of state-owned firms. Most studies build on a variety of theories to
explain the internationalization of state-owned firms. Among those studies that use a single theoretical
approach, there appears to be a theoretical dichotomy in predictions, with some theories highlighting the
advantage and others the disadvantage of stateness (Cuervo-Cazurra & Li, 2021; Musacchio, Monteiro, &
Lazzarini, 2019). On the one hand, studies using agency theory point out the additional costs that state-
owned firms incur as a result of their multilevel agency problems, which hampers internationalization.
Similarly, studies building on neo-institutional theory highlight how state-owned firms suffer from lower
legitimacy in host countries that limits entry. On the other hand, studies that draw on the resource-based
view argue that state-owned firms can access state resources and thus internationalize more widely. There
remains a need to increase the impact and sharpness of these arguments by clarifying the predictions of the
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theories on internationalization. More depth can be added by identifying the conditions, like the level of
state ownership (Kalasin, Cuervo-Cazurra, & Ramamurti, 2019), under which the arguments of one theory
compensate for the predictions of another.
The internationalization of sovereign wealth funds. Most studies on sovereign wealth funds focus
on their rise and the influences on their investment strategies and returns, rather than on developing theory.
Explanations are mainly based on principles of optimal portfolio allocation, attempting to identify whether
sovereign wealth funds show biases in their investment decisions because they are state-owned. One set of
studies investigates how governments use foreign investments by sovereign wealth funds to promote
national development (Haberly, 2014; Kamiński, 2017; Sun, Li, Wang, & Clark, 2014). Another set with
links to political economy focuses on the location choice of sovereign wealth funds’ foreign investments,
and how political relations with host countries influence the location and amounts invested (Johan, Knill,
& Mauck, 2013; Knill et al., 2012; Makhoul, Musacchio, & Lazzarini, 2020). The few studies in
management use a mix of theoretical foundations like transaction costs, neo-institutional, or signaling
theory (Aguilera et al., 2016; Vasudeva, Nachum, & Say, 2018).
Building bridges. The two research streams show a diversity of theoretical bases. In contrast to
analyses of private investors, studies on governments as foreign investors tend to build links, sometimes
implicitly, to political economy theory to explain the role that the government plays in decisions. They can
extend theories by challenging some of the assumptions on which they have been built, namely private
investors searching for returns, by incorporating nonbusiness objectives in the theorization.
Empirical Bases
The internationalization of state-owned firms. While the early literature analyzed European state-
owned multinationals, recent studies usually focus on Chinese firms, with Brazilian firms coming in a
distant second. One reason might be that the size and growth of these two economies helped their state-
owned firms reach the scale and funds needed for internationalization. Moreover, in both countries,
governments implemented an active policy of supporting outward foreign direct investment in an apparent
desire to have national champions that dominate strategic industries (Lazzarini, Musacchio, Bandeira-de-
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Mello, & Marcon, 2015; Luo, Xue, & Han, 2010). These support policies are unusual elsewhere, likely
biasing our understanding of the role of governments in the internationalization of state-owned firms.
Despite their importance, we know little about leading state-owned multinationals from advanced
economies or resource-rich countries. Early studies analyzed samples containing only state-owned
multinationals (Mazzolini, 1980), but recent ones usually compare them to private firms (Li, Xia, & Lin,
2017). Few analyses include state-owned firms from multiple countries, limiting our understanding of home
country drivers of internationalization, such as the type of capitalism (Mariotti & Marzano, 2019).
The internationalization of sovereign wealth funds. Research on sovereign wealth funds tends to
be dichotomous, analyzing either many sovereign wealth funds from multiple countries or only one. The
former studies rely on publicly traded firms in which sovereign wealth funds have invested and collect data
on all available sovereign wealth funds regardless of country of origin. Some match investments by
sovereign wealth funds and pension funds to understand the role of the government in investment decisions
(Boubakri, Cosset, & Grira, 2016). This may bias our view of their investment strategies, as we know little
about investments in private equity and illiquid assets like real estate. The latter studies focus on
investments by one fund, usually Norway’s Government Pension Fund Global (Vasudeva, 2013; Vasudeva
et al., 2018) or Singapore’s Temasek (Gnabo, Kerkour, Lecourt, & Raymond, 2017; Phelps, 2007) because
these are transparent.
Building bridges. The research databases used appear to bias the knowledge we are gaining on
governments as foreign investors. Most studies rely on datasets of publicly traded firms, which are only
partially state-owned. Future research can add novelty by using datasets of wholly state-owned firms and
investments that are not publicly traded, and by extending the countries researched beyond Brazil and China
in studies of state-owned multinationals and Norway and Singapore in analyses of sovereign wealth funds.
Patterns of Internationalization
The internationalization of state-owned firms The literature on the internationalization of state-
owned firms has studied a wide variety of dimensions of internationalization and, with some exceptions
14
(Aharoni, 1986), seems to agree that the government plays a significant role in the foreign expansion of
state-owned firms. However, the specifics of such influence are under debate.
We separate the studies into categories based on the type of relationships they focus on:
internationalization motive, internationalization level, and the selection of country of destination and entry
mode. The main lessons are that state-owned multinationals (1) have politically influenced nonbusiness
motives; (2) select more challenging host countries and use more acquisitions, even if the market reactions
are negative; and (3) show conflicting behavior on the level of internationalization, with some studies
proposing a higher level and others a lower one (Cuervo-Cazurra & Li, 2021).
First, among studies on internationalization motives, some research argues that state-owned
multinationals behave differently, although they do not compare them to private firms. These articles
indicate that state-owned firms are driven to internationalize by political motives, such as the desire for
governmental access to strategic assets and natural resources (Buckley, Cross, Tan, Xin, & Voss, 2008).
Other studies indicate that managers of state-owned firms drive internationalization in search of
independence from government control (Choudhury & Khanna, 2014). Other studies that compare state-
owned and private firms find that the government influences both state and private firms and that they
pursue similar internationalization objectives (Ren, Manning, & Vavilov, 2019). This conflict in arguments
may result from the Chinese government’s internationalization mandate and support to all firms (Luo et al.,
2010). For example, to facilitate cross-border investments by both state-owned and private firms, the
Chinese government is establishing foreign trade agreements with host countries (Buckley, Clegg, Voss,
Cross, Liu, & Zheng, 2018).
Second, state ownership seems to have a competing influence on the level of internationalization.
Some studies argue that the agency problems of state-owned firms lead to less internationalization (Li, Xia,
Shapiro, & Lin, 2018; Mazzolini, 1979), while others propose that the provision of preferential resources
to state-owned firms supports their internationalization (Luo et al., 2010). The literature that compares state-
owned and private firms shows conflicting patterns of findings. Some find that state-owned firms have
more foreign investments thanks to their government support (Benito, Rygh, & Lunnan, 2016; Ramasamy,
15
Yeung, & Laforet, 2012). Others show that they have fewer investments due to home country
overdependence (Deng, Yan, & van Essen, 2018; Huang, Xie, Li, & Reddy, 2017). Yet others indicate that
they are similar to private firms (Hu & Cui, 2014), especially state-owned firms with strong home-country
governance (Estrin, Meyer, Nielsen, & Nielsen, 2016).
A third group of articles investigates the selection of the country of investment and entry mode,
acknowledging that governments’ nonbusiness objectives affect the decisions. Governments direct state-
owned firms to countries with good diplomatic relationships and that are similar to the home country in the
weakness of their institutions (Zhang & He, 2014) because they can influence the host country to support
and protect their firms. Entry modes are influenced by state ownership, which helps to achieve more control
over foreign operations (Dikova, Panibratov, & Veselova, 2019; Kalotay & Sulstarova, 2010). Among entry
modes, most studies analyze acquisitions. In this case, state-owned firms execute more acquisitions than
private firms and gain full ownership thanks to their home government support (Li et al., 2017; Meyer,
Ding, & Li, 2014). However, there are conflicting market reactions to acquisitions. Some propose adverse
reactions to acquisitions because of the perceived higher inefficiency of state-owned firms (Chen & Young,
2010; Li et al., 2018), while others argue for positive reactions from the preferential government treatment
(Du & Boateng, 2015). Some studies argue that state-owned firms prefer purchasing stand-alone assets
instead of firms, and that their choices are similar to private firms when their home country has well-
functioning institutions (Grøgaard, Rygh, & Benito, 2019).
Fewer studies analyze other dimensions of internationalization besides foreign direct investments,
such as how state ownership affects offshore outsourcing, imports, or exports (Cuervo-Cazurra & Dau,
2009). One way to clarify the conflicting arguments on whether the government helps or hinders
internationalization is to identify the conditions under which such relationships hold, such as the attitudes
or type of governments, the level of development of the country, or the industry of operation.
The internationalization of sovereign wealth funds. The sparse literature on the
internationalization of sovereign wealth funds can be grouped into two sets: studies on their behavior,
including investment portfolio strategy and decision making, and analyses that compare the investment
16
performance of sovereign wealth funds to private funds. The general conclusion from these studies is that
(1) sovereign wealth funds invest abroad in search of diversification and behave differently from private
funds, and (2) they invest in better firms and countries with stronger investor protection.
Sovereign wealth funds invest abroad to diversify their macroeconomic and political exposures by
investing in global equities and debt, especially those of developed economy firms. This stream of research
on portfolio selection unanimously finds that sovereign wealth funds behave differently as they invest in
firms in strategic industries (Boubakri et al., 2016; Haberly, 2011; Sun et al., 2014); in countries with strong
legal institutions and higher economic growth (Debarsy, Gnabo, & Kerkour, 2017); and in large, profitable,
international firms (Karolyi & Liao, 2017; Megginson & Fotak, 2015; Mietzner, Schiereck, & Schweizer,
2015). Sovereign wealth funds from OECD countries invest differently from those from non-OECD
countries (Avendaño & Santiso, 2011); use different target selection criteria, depending on whether the
target is from an OECD country or not; and tend to re-invest in the same country (Candelon, Sy, & Arezki,
2011).
Some analyses explore how differences between home and host country affect investments. They
indicate that sovereign wealth funds are used by their governments as tools to promote national economic
development by investing abroad in priority sectors (Haberly, 2011; Kamiński, 2017; Sun et al., 2014).
Other studies find that investments through sovereign wealth funds’ portfolio companies get the right level
of managerial attention if these investments represent an important portion of the overall portfolio (Makhoul
et al., 2020).
Sovereign wealth funds also seek to influence host country governments. This influence can be
achieved by providing money to campaign finance firms, where allowed, especially in industries with more
restrictions on foreign investments (Calluzzo, Dong, & Godsell, 2017), or by having representatives on the
board in energy firms (Kamiński, 2017). Policy makers in host countries can also actively court sovereign
wealth fund investments in local firms as long-term patient capital or to expand overseas market
opportunities for these firms, and politically reach out to sovereign wealth fund–owning governments to
advance their interests (Haberly, 2011; Haberly, 2014; Lavelle, 2017; Thatcher & Vlandas, 2016).
17
Bortolotti et al. (2015) and Bahoo, Alon, and Paltrinieri (2020) summarize research on the target selection
and decision-making processes of sovereign wealth funds.
Comparisons of sovereign wealth fund and private fund investment performance study their cross-
border strategies to understand whether they behave differently in terms of choice (private or public equity
investments), risk appetite, and returns. Particular attention is given to sovereign wealth funds’ transparency
and their target firms’ performance (Bortolotti et al., 2015; Dewenter et al., 2010; Karolyi & Liao, 2017;
Megginson, 2017).
It remains unclear why some sovereign wealth funds decide to remain opaque even though they
may face challenges and restrictions by doing so when investing overseas. Further, there is still a substantial
gap in the literature on how macro issues, such as characteristics of the governments or economies, or micro
factors, such as corporate governance, affect the internationalization motives of sovereign wealth funds.
Building bridges. The arguments and findings of studies of governments as foreign investors
confirm that they behave differently from private investors. State ownership appears to play a dual role in
the internationalization of state-owned firms and sovereign wealth funds by constraining and supporting
internationalization. This reflects the tension between the disadvantage and advantage of stateness (Cuervo-
Cazurra & Li, 2021; Musacchio et al., 2019). On the one hand, state-owned investors seem to have a lower
tendency to go abroad because of governments’ preference for domestic investments to gain political
support, and because of the increased scrutiny and constraints that state-backed investments face in host
countries. On the other hand, once they decide to invest abroad, they benefit from the government’s
financial and diplomatic support, targeting countries and projects that are too risky for private investors.
RESEARCH AGENDA: THE WAY FORWARD
Despite the significant progress made in our understanding of the government as a foreign investor,
many areas can benefit from more research. Building on this review, we suggest several research avenues
that integrate our understanding of the internationalization of state-owned multinationals and sovereign
wealth funds further. We organize them by topic and detail research questions in Table 7.
*** Insert Table 7 here ***
18
Home Government: Endowments, Characteristics, and Attitudes
From the review, it is apparent that home country characteristics drive the internationalization of
both state-owned multinationals and sovereign wealth funds. Sovereign wealth funds have been created in
countries with strong economic growth and an excess of foreign exchange reserves and wealth accumulated
through natural resources. State-owned multinationals have also been formed in interventionist states with
a traditionally active role of the government, supporting the internationalization of home state-owned firms.
We outline below what appear to be promising ideas.
Endowments. One fundamental question is the identification of how country endowments induce
the creation of state-owned multinationals and sovereign wealth funds. The level of home country exposure
to financialization (Wood & Wright, 2013) can affect the choice of organizational form of the investment
vehicle (e.g., countries with developed financial markets are more likely to have sovereign wealth funds).
National governments appear to specialize in the vehicles they use to internationalize investments, with
small but affluent economies exclusively investing through sovereign wealth funds, while bigger, emerging
countries channel most of their international investments through state-owned firms. This can help solve
the question of why some governments set up sovereign wealth funds from natural resources windfalls,
while others spend the windfalls subsidizing the welfare of the population. Attitudes towards savings and
consumption may explain this. Home country endowments can also affect the level of internationalization.
For instance, state-owned firms in some emerging markets receive abundant state financing for
internationalization.
Characteristics. The characteristics of the political system of the home country is another
interesting topic. Future research can analyze how political regimes and election cycles affect the
international strategies of state-owned multinationals and sovereign wealth funds. One way is to separate
between authoritarian and democratic governments. In democratic systems, the rotation of parties in power
with diverging attitudes towards state government control of the economy can lead to sharp changes in the
internationalization strategy of state-owned multinationals and sovereign wealth funds. Non-democratic
systems do not face such rotation, which may enable state-owned businesses to adopt longer term strategies.
19
It would also be interesting to analyze the buffers that state-owned entities can create to reduce disruption
to their long-term strategies with changes in government. A new government may question the decisions
taken by a previous one regarding foreign state-owned entities. Finally, there is room for analysis of the use
of lobbyists and campaign donations by foreign state-owned multinationals and sovereign wealth funds to
influence host governments and their internationalization.
Attitudes. Future research could benefit from a more structured analysis of the role of the home
government’s attitudes towards the internationalization of state-owned multinationals and sovereign wealth
funds. For instance, research could use classifications of countries by the level of intervention in the
economy (Wright et al., 2021) and identify patterns of foreign investments. This will reduce the criticism
of the existing literature, especially on state-owned multinationals, as being based on a small set of
countries, which limits generalization. Going deeper into the attitudes of the government towards its role
in the economy, and not just the quality of institutions or the type of political system, can yield valuable
insights. For example, one important question is why some governments control the foreign expansion of
state-owned firms and sovereign wealth funds (e.g., China), while others give them autonomy (e.g.,
Norway). Politicians’ view of their role in the economy and the level of trust or contract enforceability may
drive these differences.
Host Country Expansion: Support, Influence, and Impact
How private multinationals make their selection of host countries and decide on the entry modes
they use in these countries is well known (Rugman, 2009). In state-owned multinationals and sovereign
wealth funds, there are new issues to consider as being government-owned entities.
Support. One of the core insights on internationalization is how home country governments play a
dual role in internationalization: they constrain the foreign expansion of state-owned entities by directing
them towards political objectives at home, but once those firms go out abroad, they support their expansion
with state resources. This support from the government enables them to undertake investments that are too
risky for most private investors and mitigate some of the risks (Rose, 2009). Sovereign wealth funds can
benefit from state support and alter their long-term investment strategies to become more exposed to riskier
20
sectors in host countries in exchange for higher returns or greater influence. There might be some interesting
coordination among firms in the same industry through investments by sovereign wealth funds and state-
owned firms that reinforce state influence in that industry not only at home, but also abroad.
Influence. Research can analyze whether and how corporate governance standards at the holding
or portfolio levels diffuse to the next micro- level of the subsidiary or investee firms in host countries.
Sovereign wealth funds could potentially become better monitors amongst institutional investors since they
have long-term commitments in their investee firms and lack liquidity constraints. However, given the
political and social priorities of sovereign wealth fund board representatives, it is unclear what the overall
impact on the corporate governance processes of their investee firms would be, creating an opportunity for
further research. We need more research on the management of foreign subsidiaries of state-owned
multinationals and foreign portfolio firms of sovereign wealth funds, such as the acquisition and transfer of
knowledge from host to home operations. There is also the issue of heterogeneity in the level of ownership
in foreign investments and the varying degrees of government influence. Minority ownership, for example,
is often considered a subtle but still influential method of government intervention (Inoue et al., 2013).
Impact. Another area of interest is how host countries manage the trade-offs between the economic
benefits and political costs of investments by state-owned multinationals and sovereign wealth funds. There
is a conflict between the technocratic analysis of the economic benefits of investments by state-owned
multinationals and sovereign wealth funds, and the politically driven discourse about the interference of
home governments in host country economies. State-owned multinationals can generate spillovers from
investing in knowledge transfer and knowledge-intensive industries, such as high tech, and be proactive in
such spillovers, instead of aiming to reduce them, as is the usual recommendation of the literature
(Blomström & Kokko, 1998). Investments by state-owned multinationals and sovereign wealth funds can
be used as rewards or punishments, but there is a need for a more subtle understanding of differences
between state-owned multinationals and sovereign wealth funds as tools of foreign influence and power.
Sovereign wealth funds usually have fungible investments that can be more easily changed but are less
21
influential because of their smaller size. In contrast, state-owned firms have large stakes that grant firms
greater influence but reduce their ability to exit the host country quickly.
Home-Host Country Relations: Conflicts, Mediation, and Disguising
The impact of the interactions between host and home country on the behavior of state-owned
multinationals and sovereign wealth funds is a topic with ample potential for future research. The typical
approach to the analysis of home and host connections is to identify the differences between home and host
country settings and study how these reduce international expansion and success (Berry, Guillén, & Zhou,
2010; Beugelsdijk, Kostova, Kunst, Spadafora, & van Essen, 2018). The study of state-owned entities goes
beyond these differences and into the quality of the relationships between countries because what matters
for state-owned entities is the relationship between home and host country governments.
Conflicts. There are intriguing instances of state-owned entities addressing political conflicts
between home and host countries. It would be interesting to investigate the institutional variety of responses
to foreign government investments. For instance, some EU countries have proactively sought investments
from sovereign wealth funds of countries with which they had strong political and trade links (Thatcher &
Vlandas, 2016). It is interesting to analyze host country retaliation, that is, how countries can use evaluations
and other informal political restrictions to limit hostile governments’ foreign investments (Cuervo-Cazurra,
2018; Lavelle, 2017). For example, the Committee on Foreign Investment in the United States limits foreign
governments’ influence through state-owned multinationals and sovereign wealth funds.
Mediation. However, government-owned entities do not have to be passive captives in conflicts
between home and host governments. Instead, they could mediate relations through informal channels to
achieve their goals. Internationalization and financialization imply that financial markets contain power
projection mechanisms, which governments can deploy via foreign investments of state-owned firms or
sovereign wealth funds (Monk, 2011).
Disguising. In addition to host country governments, state-owned entities need to pay attention to
the perceptions of host country citizens. Host governments and citizens react differently to entry by state-
owned entities. Whereas governments are aware of and have national security concerns about investment
22
by foreign sovereign wealth funds or state-owned multinationals (Cuervo-Cazurra, 2018), citizens are often
unaware of the state ownership of firms. Government-owned entities can respond to these reactions by
disguising their influence. For example, state-owned multinationals may retain the brand names of local
companies and products they purchase to disguise their foreignness, while sovereign wealth funds can use
private equity funds to invest abroad indirectly.
Management: Orientation, Opacity, and Arbitrage
As to the management of state-owned entities, it would be interesting to understand how they are
managed to balance the need to achieve business objectives and the requirement of politicians to pursue
some nonbusiness objectives. A few critical issues worth considering are managers’ orientation, decisions’
opacity, and investments’ arbitrage.
Orientation. Research on managerial behavior could illuminate the decision-making processes
within state-owned multinationals’ subsidiaries and sovereign wealth funds’ investee firms. For example,
future research could investigate whether the long-term orientation of the government impacts the strategic
decision making of managers in subsidiaries/investee firms in host countries. Additionally, future studies
could focus on the effect of sovereign wealth fund shareholder activism on managerial behavior in investee
firms (Wright & Amess, 2017). Also important to study is investment-level heterogeneity in areas such as
size, fit with the portfolio or holdings, and other influences on managerial attention and internationalization.
Opacity. One opportunity would be to study the determinants of sovereign wealth fund
transparency and disclosure to find out why some sovereign wealth funds choose to remain opaque despite
restrictions when investing abroad. Considering their opacity as a facilitator of money laundering and
embezzlement , research could investigate the mechanisms that mitigate expropriation, especially since
sovereign wealth funds are increasingly intertwined with the global financial markets through their foreign
investments.
Arbitrage. Finally, further research is needed on the heterogeneity of state-owned multinational
and sovereign wealth fund investments. Namely, research on the varying role of the state as a shareholder
in state-owned multinationals relative to privately held multinationals in the valuation effects can be useful
23
in understanding the motives behind international investments. Prior studies have shown that international
corporate diversification enhances firm value in private multinationals (Errunza & Senbet, 1981; Gande,
Schenzler, & Senbet, 2009), but further light can be shed on the effect of international diversification in
state-owned vehicles, and how the latter arbitrage differences in legal forms of incorporation and corporate
taxes across countries relative to private multinationals (Gande, John, Nair, & Senbet, 2020).
EXTENDING THEORIES OF THE FIRM VIA CROSS-FERTILIZATION
Complementing the analysis of new research avenues on the internationalization of state-owned
multinationals and sovereign wealth funds discussed in the previous section, we suggest another extension
by refining theoretical explanations via cross-fertilization. We illustrate this by explaining how selected
theories of the firm—agency, transaction cost economics, the resource-based view, resource dependence,
and neo-institutional—can be advanced via the cross-fertilization of insights of one research area on the
other. Table 8 summarizes these ideas.
*** Insert Table 8 here ***
Agency Theory
Agency theory is primarily concerned with how to align the interests of principals (owners) and
agents (managers) to achieve desired goals (Jensen & Meckling, 1976). State-owned firms suffer from
unique agency problems in comparison to private firms. These firms are viewed as suffering from multilevel
principal-agent problems which result in reduced competitiveness and performance relative to the private
firm (Grøgaard et al., 2019; Grosman et al., 2019; Musacchio & Lazzarini, 2014). These conflicts among
the goals of citizens (the nominal owners and ultimate principals), politicians (the agents of citizens), civil
servants (the agents of politicians), and managers (the agents of politicians and civil servants) depend on
the organizational distance between principals and agents. Some state-owned multinationals are directly
influenced by their governments, while others, especially minority-owned ones, are more autonomous
(Inoue et al., 2013). An interesting theoretical dilemma for state-owned firms is that greater managerial
autonomy increases agency conflicts, but at the same time it reduces political interference in decisions.
These insights can help extend research on sovereign wealth funds by discussing how divergence in
24
objectives among citizens, politicians, and asset managers influence the behavior of sovereign wealth funds
and their investee firms abroad. Another extension is analyzing state-ownership opacity and the
expropriation of minority shareholders (Grosman et al., 2019; Sun, Hu, & Hillman, 2016). Research on
sovereign wealth funds can benefit from these insights, given that their opacity makes it easier to
misappropriate funds (Rose, 2017).
Sovereign wealth fund research can help inform new agency approaches in state-owned
multinationals. Agency problems are exacerbated when sovereign wealth funds invest indirectly through
intermediaries like private equity or hedge funds (Wright & Amess, 2017). Research on state-owned
multinationals can incorporate more detailed analyses of multi-principal conflicts in firms and foreign
subsidiaries with mixed ownership. Additionally, the autonomy and attention of sovereign wealth funds’
managers vary with the size and type of investment (Makhoul et al., 2020), which can inform studies of
state-owned multinationals and their stakes in complex ownership pyramids.
Transaction Costs Economics
Transaction costs economics explains firm behavior based on reducing the cost of transactions in
economic relationships among actors (Williamson, 1985). State ownership has competing influences on
transaction cost management. The negative view of government ownership argues that it increases the
transaction costs by augmenting the risk that a firm may not fulfill contract obligations due to politically
motivated interference. The positive view argues that it decreases transaction costs by reducing the risk of
fraudulent behavior on behalf of firms. Which effect prevails depends on contingencies. For instance, state-
owned multinationals are better able to manage global risks and institutional challenges from their
experience in dealing with the uncertainty and risk of transacting with a government. This can be extended
to the sovereign wealth funds literature to analyze how this experience helps them make better investments
in countries with high government intervention.
The literature on sovereign wealth funds uses transaction cost economics differently, proposing
that sovereign wealth funds can deal with higher levels of investment risk due to the government’s support.
Recipient target firms and countries benefit from access to patient (long-term) capital and sovereign wealth
25
funds’ home country markets (Rose, 2009). The state-owned multinationals literature can benefit by
incorporating these ideas and explain how the support of the home government helps state-owned
multinationals reduce their transaction costs when investing in locations with a higher risk profile.
Resource-Based View
The resource-based view explains how private firms develop and use resources and capabilities to
satisfy customers’ needs better than rivals (Barney, 1991). From this viewpoint, state ownership provides
an advantage from access to privileged funding, regulation, and support, thanks to the human and social
capital of government officials appointed to the boards that also facilitates internationalization. Studies on
sovereign wealth funds can use these ideas and explain how sovereign wealth funds gain an advantage from
access to state resources, not only as capital but also from connections to government officials and their
expertise in dealing with foreign investments and governments.
The literature on sovereign wealth funds does not explicitly build on the resource-based view.
Instead, it discusses how sovereign wealth funds mitigate the resource curse by reducing the negative
consequences of natural resource wealth, reducing corruption from the misuse of wealth in emerging
economies (Dixon & Monk, 2011). Alternatively, sovereign wealth funds help home governments access
resources abroad to promote national development (Haberly, 2011; Kamiński, 2017; Sun et al., 2014).
Studies of the building of state-owned multinationals can be cross-fertilized with these ideas to analyze
their ability to reduce the resource needs of the home country via their foreign investments.
Resource Dependence Theory
Resource dependence analyzes power, which is driven by one actor influencing the behavior of
another because the former controls something the latter needs (Pfeffer & Salancik, 1978). State-owned
firms depend on the government for resources and guidance, constraining their ability to pursue business
objectives. This also limits their ability to invest abroad, as the dependence enables politicians to induce
state-owned multinationals to invest at home (Deng et al., 2018; Okhmatovskiy, 2010). This sometimes
leads managers of state-owned firms to try to escape politicians’ control via internationalization
(Choudhury & Khanna, 2014; Rodrigues & Dieleman, 2018). These ideas can inform the study of the
26
constraining effects of government influence on sovereign wealth funds’ capital allocation strategies
(Vasudeva, 2013) and how politicians’ preferences drive their investments.
Studies on sovereign wealth funds do not explicitly build on a resource dependence approach, but
they point out the challenges that some economies and sovereign wealth funds encounter from their
dependence on natural resources as their primary sources of income in their asset allocation strategies
(Balding & Yao, 2011). Such dependence induces sovereign wealth funds to invest in a broader range of
industries abroad to lessen dependence on the home government regulatory framework (Megginson &
Fotak, 2015). State-owned multinationals research can use these insights to study how foreign expansion
into diverse industries can reduce dependence on home country institutions (Choudhury & Khanna, 2014).
Institutional Theory
Neo-institutional theory proposes that to achieve legitimacy, firms imitate other companies in
response to host country regulatory, normative, and cognitive pressures. In the context of state-owned firms,
it notes that these firms suffer from state ownership illegitimacy abroad. The effect of state ownership on
internationalization switches from being negative in liberal market economies to positive in coordinated
market economies at either extreme of the varieties of capitalism spectrum (Mariotti & Marzano, 2019).
Comparisons between minority and majority state ownership add another layer of complexity to the
institutional moderation (Benito et al., 2016; Chen et al., 2019; Grøgaard et al., 2019; Mariotti & Marzano,
2019). Research on sovereign wealth funds can study how their lower legitimacy abroad limits their
investments, ownership of noncontrolling positions, and investments under the disclosure thresholds in the
host country.
Sovereign wealth funds are efficient and powerful tools for the home governments to indirectly
influence the legitimacy and perception of a country in which they invest (Vasudeva et al., 2018). There is
always a fear that behind the seemingly rational financial investments, there is a political or social agenda,
even if it promotes democratic values such as national welfare or global justice (Dixon & Monk, 2012;
Monk, 2011). These ideas can cross-fertilize research on state-owned multinationals by analyzing the
27
political influence through their investments abroad, discussing how the political agenda of the home
government modifies the perceptions of legitimacy.
EMERGING THEORETICAL CONSTRUCT: DISCREET POWER
Finally, we complement the review and guidance on future research topics and theories with an
additional suggestion for theoretical advancement by introducing the concept of discreet power. This
concept encapsulates discussions in previous studies of the use of state-owned multinationals and sovereign
wealth funds or both as vehicles for influencing host country governments. This is a suggestion for
clarifying past insights and providing additional theoretical depth, which future research can refine.
Power in International Relations: Hard, Soft, and Discreet
Power is the ability to influence others to follow one’s desires. It is a relative concept in which one
party can induce another to change its behavior according to the first party’s preferences. In relations among
countries, the traditional typology of power is the distinction between hard and soft power (Nye, 2004). On
the one hand, hard power is associated with one government influencing another through coercion. The
latter acquiesces because it fears the potential retaliation in case of non-compliance. Hard power is usually
tied to military and economic might (Robertson & Sin, 2017). The retaliation threat can come from using
military force and armed conflict to force alignment. It can also be driven by economic strength and the
threat of loss of economic relations in case of misalignment of behavior (Layne, 1997).
On the other hand, soft power is linked to one country influencing the behavior of another through
co-optation, with the latter being attracted to the former and adopting the desired behavior voluntarily (Nye,
2004). Co-optation can result from policies that the country adopts in its international relations and that
benefit other countries, leading to their adoption. It can also be motivated by the political values espoused
by the country through its foreign policy which becomes a reference that other countries see as legitimate
and emulate (Gill & Huang, 2006). Finally, it can be led by the country’s culture and values, which are
perceived to be superior by others and are thus imitated (Watanabe & McConnell, 2008).
We suggest discreet power as a third option. With discreet power, the government aims to provide
a subtle inducement for aligning behavior through nudging. A nudge is “any aspect of the choice
28
architecture that alters people’s behavior […] without […] significantly changing their economic
incentives” (Thaler & Sunstein, 2008: p.6). Governments can nudge other countries toward their objectives
with investments in the host country that follow the preferences of the government, with such investments
being undertaken by state-owned companies or financed by state-owned banks and sovereign wealth funds.
Thus, discreet power falls in between hard and soft power. It is neither the result of the first country forcing
the second to adopt policies nor the second adopting the policies voluntarily, but rather part of a more subtle
mutually beneficial relationship between the two countries. One example of discreet power via sovereign
wealth funds is the global diffusion of values espoused by the Norwegian government through its use of
Norway’s Government Pension Fund Global (Rose, 2017; Vasudeva, 2013) by engaging in shareholder
activism.
State-Owned Multinationals and Sovereign Wealth Funds as Tools of Discreet Power
State-owned multinationals and sovereign wealth funds can be used as mechanisms for achieving
discreet power in two ways: as a reward that highlights the host country’s benefit for aligning interest, or
as a punishment that points to the harm to the host country for not following expected behavior. On the one
hand, the home government can follow a reward approach in its use of discreet power via state-owned
multinationals and sovereign wealth funds to nudge its political priorities abroad. The home government
can guide its state-owned firms to build subsidized infrastructure in the host country, such as roads,
railroads, or electricity distribution (Mwase, 1983). These investments are highly visible to local politicians
and populations and help improve relations with the host country, aligning interests in bilateral cooperation
and gaining support in multilateral institutions (Dreger, Schüler-Zhou, & Schüller, 2017). The home
country government can use the sovereign wealth funds to invest in preferred projects in the host country
so that these projects have the funding needed to become viable when commercial providers of funds would
shy away from the costs or risks (Haberly, 2011). Such investments can help improve political relationships
with the host government and keep political preferences aligned (Beeson, 2009). The reward approach is
thus likely to be more efficient when there are affinities between the governments of home and host
countries that foster existing political or trade relations further.
29
On the other hand, the home government can use punishment through discreet power tactics via its
state-owned multinationals and sovereign wealth funds when political interests are not aligned. It can direct
its state-owned firms to limit investments or reduce the purchases of imports from the host country (Yang,
Zhang, & Terazono, 2019) as was done, for example, when in 2021 China punished Australia’s attempt to
investigate how the COVID-19 virus emerged. Such actions can be a subtle message to the host country to
nudge its political actions to align with the desires of the home government, given that a reduction in the
purchase of imports has a quick and reversible impact. The government can also direct its sovereign wealth
funds to divest from host country firms to nudge the host country government to align with political desires,
as the opening quote illustrated. Such divestitures have expediency value since the sale of stocks and bonds
can be quickly reversed once the preferred political behavior is adopted.
Discreet Power Strategies across Countries
All countries can use state-owned multinationals and sovereign wealth funds as mechanisms to
implement discreet power, but their use is likely to vary across countries. We propose four types of
nonbusiness strategies of state-owned entities as tools of discreet power: recognition, values, development,
and supremacy. Table 9 illustrates the classification of discreet power strategies by whether they are used
with a mostly social or economic goal, and whether the orientation is mostly inward or outward. These
nonbusiness strategies complement the business strategies of the state-owned entities and their search for
financial returns. The discreet power strategies evolve with changes in the political regime, ideology, or
leadership. For example, under Prime Minister Justin Trudeau, the government of Canada used its sovereign
wealth fund to promote the sale of oil and increase economic returns rather than spread its social and ethical
values to other countries, as was more the case previously. Nevertheless, they are likely to be used more or
less intensively depending on the characteristics and attitudes of governments.
*** Insert Table 9 here ***
A value strategy is the use of discreet power to spread home values in other countries. It is likely
to be used by countries with democratic governments in market-oriented states. Strong institutions and the
separation among powers in democratic systems limit the ability of politicians to force state-owned firms
30
towards nonbusiness objectives. Thus, state-owned firms are likely to internationalize in pursuit of business
objectives, as was in the case with German automobile firm Volkswagen’s global expansion, while
sovereign wealth funds invest in pursuit of financial returns, as in the case of the Alaska Permanent Fund
Corporation’s mandate to obtain sustained, compelling returns for Alaskans. Their internationalization may
be influenced by the desire to spread preferred values and ethical standards abroad, as occurred when
Norway’s Government Pension Fund Global became an instrument of the Norwegian government for
spreading social norms and environmental practices (Vasudeva, 2013). This strategy is likely to be most
effective when the sovereign wealth fund coordinates with other investors to alter company values. The
value strategy is most likely to be deployed through sovereign wealth funds since most state assets in such
countries are owned through them, although welfare states also deploy the value strategy through state-
owned firms, as with Italian ENEL’s push to develop sustainable power grids in emerging countries.
A supremacy strategy is the utilization of discreet power to exert dominance abroad. It is more
likely to be followed by interventionist countries with authoritarian regimes, where the dominant channel
for discreet power is through state-owned firms. These countries have governments with limited checks and
balances on the use of state-owned firms by politicians, who can induce state-owned firms to undertake the
investments and activities that politicians deem useful for them. Politicians can direct state-owned firms to
invest in preferred countries to achieve political goals, as when Russia’s state-owned Gazprom invested in
developing a pipeline to Germany that bypasses Ukraine. They can also use sovereign wealth fund
investments to support political relationships despite dubious financial returns, as when Libya’s sovereign
wealth fund bought 25% of a $4 billion issuance of convertible bonds by Unicredit, Italy’s second-largest
bank, and later became the largest shareholder (Bertoni & Lugo, 2013).
A development strategy is the use of discreet power in host countries to facilitate the home country’s
development. It is likely to be employed by interventionist states with democratic governments, and
primarily through state-owned firms. The checks and balances of the democratic government limit the use
of state-owned firms to exert political influence abroad if this results in a misuse of funds. Politicians and
civil servants can guide state-owned firms or funds to invest in international projects that facilitate access
31
to needed technologies or markets, such as the Indian government mandating mineral-based state-owned
firms to buy strategic lithium and cobalt assets overseas, as India aims to build an electric vehicle battery
manufacturing capacity (Majumdar, 2018).
Finally, the recognition strategy is using discreet power to improve the home country’s standing
abroad. It may be employed by entrepreneurial states with authoritarian political regimes, primarily through
sovereign wealth funds. In these countries, the authoritarian nature of the governments reduces criticism.
Political objectives can take preeminence over commercial ones in foreign investments as the government
creates firms that strengthen its recognition abroad. An example is the sovereign wealth fund Investment
Corporation of Dubai, which assumed the costs of hedging oil contracts for the United Arab Emirates’
airline Emirates to help its growth, increasing Dubai’s recognition in the region (Saleem, 2015).
CONCLUSIONS
The literature on state capitalism in international business has been ramping up in recent times,
highlighting the importance of the phenomenon whereby governments seek ownership or control of foreign
assets. However, separate theories of multinationals and institutional investors were developed to explain
the behavior of private firms. Hence, we need an extension to explain governments as foreign investors and
describe how their nonbusiness objectives affect the internationalization of state-owned multinationals and
sovereign wealth funds. This review explains how the government imposes nonbusiness objectives that
alter the internationalization of state-owned firms and sovereign wealth funds, opening new topics and
theorization opportunities. We outline suggestions for extending the literature in topics, theoretical cross-
fertilization, and the concept of discreet power as a theoretical construct that encapsulates previous ideas.
Contributions to the Literature
This article makes several significant contributions to our understanding of the role of the
government as a foreign investor. The review clarifies the state-of-the-art on the topic, promoting the need
to establish bridges between the study of the internationalization of sovereign wealth funds and state-owned
firms and paying attention to the role of governments’ nonbusiness objectives on foreign investments. We
complement the independent reviews on sovereign wealth funds in the economics and finance literature
32
(Bahoo et al., 2020; Megginson & Fotak, 2015; Megginson & Gao, 2020) and on state-owned
multinationals in international business (Cuervo-Cazurra et al., 2014; Cuervo-Cazurra & Li, 2021) by
clarifying how insights in each stream can help promote a better understanding of the other.
The review highlights the importance of governments’ nonbusiness drivers of internationalization
and their strategic implications. Foreign investments by governments through state-owned multinationals
and sovereign wealth funds are subject to a balance between their business objectives as economic agents
and their nonbusiness objectives as state-owned entities. This balancing results in a much more subtle
impact of government ownership than the traditional negative view. Instead, there is a duality in state
ownership as it can harm some internationalization decisions while helping others. This duality view can
help future researchers develop more sophisticated predictions by analyzing the conditions under which the
helping hand may compensate the grabbing hand, and vice versa, not only in internationalization but also
in other strategic decisions such as growth, diversification, or performance.
The joint study of state-owned multinationals and sovereign wealth funds helps advance theory in
several ways. We suggest expanding theories of the firm by cross-fertilizing insights from one topic on the
other. Additionally, we suggest the concept of discreet power to clarify understanding of the government
as a foreign investor. This is a new dimension of power that complements the traditional binary view of
hard and soft power in international relations (Nye, 2004). The notion of discreet power highlights the use
of nudging as the mechanism by which governments can align the interests of other countries to their own,
be it of rewarding or punishing nature. Our concept of discreet power is further calibrated by providing a
typology of four strategies for using it based on whether its orientation is inward or outward and whether
the type of desired goals is economic or social. Our categorization of uses of discreet power implicitly
builds on the law and finance literature (Djankov, La Porta, Lopez-de-Silanes, & Shleifer, 2002) by bringing
in the importance of politics, laws, and regulations on strategy. A better understanding of the discreet power
of governments could further elucidate the institutional varieties of these economies. Further, the intensity
of discreet power can be tested depending on the level of activity in foreign policy (Lavelle, 2017). The
study of discreet power can be extended to investments by private firms with the government supporting
33
private national champions, with the view that some foreign ventures can contribute to improving relations
and aligning interest with host country governments. The literature on politically connected private
companies usually considers firms using the government to achieve their objectives (Faccio, 2006) and can
also be extended by considering discreet power strategies. In sum, we offer a complementary view of the
government exercising discreet power through state-owned entities in a symbiotic relationship.
Contributions to Practice
Our conceptual framework can help decision-makers better understand the role of governments in
international business. There is much debate on the wisdom of opening to investments by state-owned
multinationals and sovereign wealth funds with the view that the governments behind them might use these
firms to pursue their nonbusiness agendas (Cuervo-Cazurra, 2018). We clarify when this might be the case
and discuss the logic and mechanisms that enable their use to influence local governments. This does not
mean that host country governments should block all investments by state-owned multinationals and
sovereign wealth funds. On the contrary, these investors can bring much-needed technological and financial
support for the firms in which they invest. The host country can analyze the strategy of discreet power
behind the investment and adopt appropriate responses. Whereas governments from autocratic and
institutionally weak economies might use state-owned multinationals and sovereign wealth funds to exert
undue influence in host countries, those from democratic and institutionally strong economies can be used
to bring superior governance and ethical standards.
34
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40
Table 1. Types of state-owned businesses
Direct ownership
Indirect ownership
State entity/
agency
State (fully) owned
firm
State majority-owned
firm
State minority-owned
firm
Sovereign wealth
fund
Public pension fund
State bank loaned
firm
Legally
separate firm
No
Yes
Yes
Yes
Yes
Yes
Yes
Budget
No separate budget
Separate budget
Separate budget
Separate budget
Separate budget
Separate budget
Separate budget
State
ownership
Direct ownership
Direct ownership
Direct ownership
Direct ownership
Indirect via ownership
by sovereign wealth
fund
Indirect via ownership
by state-owned
pension fund
Indirect via convertible
loan by state-owned
bank
Level of state
ownership
Full ownership
Full ownership
Majority ownership
Minority ownership
and/or golden share in
a private company
Minority investment in
private firm by
Sovereign Wealth
Fund
Minority investment in
private firm by state
pension fund
Minority investment in
private firm via
convertible loan by
state-owned bank
Types of
managers
Civil servants
Civil servants/
professional managers
Civil servants/
professional managers
Professional managers
Professional managers
Professional managers
Professional managers
Level of
government
influencing
firm
Central/ federal
Central/ federal;
province/ state;
municipal/ city
Central/ federal;
province/ state;
municipal/ city
Central/ federal;
province/ state;
municipal/ city
Central/ federal
Central/ federal;
province/ state;
municipal/ city
Central/ federal;
province/ state;
municipal/ city
Type of
investment
abroad
--
Foreign direct
investment
Foreign direct
investment
Foreign direct
investment
Foreign portfolio
investment; foreign
private equity
investment
Foreign portfolio
investment; foreign
private equity
investment
Foreign portfolio
investment
Drivers of
foreign
investment
(traditional)
--
Markets
Inputs/ factors of
production
Strategic assets
Markets
Inputs/ factors of
production
Strategic assets
Markets
Inputs/ factors of
production
Strategic assets
Financial returns
Diversification
Stabilization
Financial returns
Diversification
Financial returns
Diversification
Drivers of
foreign
investment
(untraditional)
--
Diplomacy
Influence
National development
Diplomacy
Influence
National development
Independence
Diplomacy
Influence
National development
Diplomacy
Influence
Diplomacy
Influence
Diplomacy
Influence
Source: Adapted and extended from Cuervo-Cazurra et al. (2014).
41
Table 2. Objective functions of private and state-owned internationalized businesses
Shareholder objectives
Stakeholders’ objectives
Government objectives
Profit
Maximization
Optimization
via
shareholder
activism
Corporate
social
responsibility
Sustainable
/ ethical
portfolio
investment
Employment
generation in
the home
country
Industrial
policy and
innovation
in the home
country
Protect inter-
generational
wealth in the
home country
Diversification
and
stabilization of
the home
country
Diplomatic
influence
Private
multinational
✓✓✓
✓
Private fund
with foreign
investments
✓✓✓
✓✓
✓
State-owned
multinational
✓
✓
✓✓
✓✓
✓✓
Sovereign
wealth fund
with foreign
investments
✓
✓
✓✓
✓
✓
✓✓
✓✓
✓✓
42
Table 3. State ownership around the world
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2019
Advanced Economies
Australia
2.48
2.48
2.48
2.14
1.52
0.81
0.81
0.81
0.81
2.53
2.51
Belgium
3.28
3.28
2.65
2.65
1.83
1.83
1.83
1.83
1.83
1.56
1.99
Canada
2.44
2.44
2.44
2.44
2.44
2.44
2.44
2.44
2.44
1.46
2.79
Denmark
3.22
3.22
3.22
3.22
3.22
3.22
3.22
3.22
3.18
3.04
2.53
France
4.30
4.30
4.30
5.99
1.92
2.56
2.56
2.56
2.56
2.56
2.84
Germany
1.99
1.99
1.99
1.99
1.98
0.72
0.00
0.00
0.89
0.00
1.39
Italy
4.62
4.62
4.62
4.22
3.93
0.36
0.36
0.36
0.36
0.48
2.20
Japan
1.84
1.84
1.84
1.84
0.81
0.81
0.81
0.81
1.21
0.61
0.63
Netherlands
2.31
2.31
2.31
2.11
2.11
2.38
2.38
2.38
2.44
3.35
2.24
Norway
3.32
3.32
3.32
3.32
3.32
3.32
3.51
3.51
3.51
3.22
2.92
Singapore
6.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16
5.63
South Korea
3.46
3.46
3.12
3.14
2.34
2.07
3.21
3.21
3.21
2.59
2.78
Spain
4.29
4.29
2.58
2.12
2.12
2.12
1.58
1.22
1.26
1.84
2.22
Sweden
3.01
3.01
3.01
3.01
3.01
1.68
1.68
1.68
1.68
1.80
2.23
Switzerland
2.20
2.20
2.02
2.02
1.80
1.80
0.84
0.00
0.00
1.02
0.96
Taiwan
4.07
4.07
4.07
4.07
3.54
2.97
2.97
2.97
1.92
1.92
2.51
United Kingdom
5.09
5.09
2.47
1.73
1.73
1.29
1.29
1.29
1.28
1.75
1.71
United States
2.06
2.06
1.24
1.24
1.24
1.24
1.24
0.00
0.00
0.00
0.69
Transition Economies
Albania
10.00
10.00
10.00
10.00
10.00
3.46
1.85
2.00
1.78
2.17
1.47
China
10.00
10.00
7.95
7.01
7.01
6.09
6.29
6.29
6.46
6.46
6.03
Hungary
10.00
9.89
9.89
4.48
1.44
1.24
1.24
1.24
1.88
4.99
4.66
Kazakhstan
10.00
10.00
10.00
10.00
5.47
3.96
3.51
4.55
4.53
5.28
4.69
Poland
5.74
5.74
5.74
5.74
3.61
3.05
2.30
2.30
2.30
2.91
3.11
Romania
10.00
10.00
10.00
10.00
6.42
5.23
3.67
3.28
2.75
3.22
2.70
Russia
10.00
10.00
10.00
10.00
10.00
4.66
5.41
5.63
5.57
6.37
5.42
Serbia
8.24
8.24
8.24
7.61
6.50
4.71
3.47
2.66
3.33
3.06
2.90
Ukraine
10.00
10.00
10.00
10.00
10.00
5.99
4.20
3.18
2.27
1.80
3.38
Vietnam
10.00
10.00
10.00
10.00
6.47
5.34
5.34
5.57
5.57
4.05
5.26
Developing Economies
Argentina
4.57
4.57
4.41
4.53
2.98
1.31
1.61
2.26
2.95
3.01
2.76
Bangladesh
10.00
5.14
4.80
4.80
4.46
4.46
4.46
4.46
4.46
3.81
3.52
Brazil
4.96
4.96
4.87
4.87
4.19
2.94
2.94
2.94
2.94
2.94
1.82
Chile
2.16
2.17
2.17
2.17
2.17
1.55
1.55
1.55
1.55
1.02
1.60
Colombia
3.27
3.27
3.27
3.27
3.27
1.82
1.82
1.82
1.82
2.86
2.20
Egypt
4.92
4.98
4.93
4.93
4.47
3.86
3.86
5.65
5.65
8.67
6.91
India
4.80
4.46
4.46
4.46
4.46
3.27
3.27
3.27
3.27
3.27
1.89
Indonesia
6.09
6.09
6.09
6.09
6.09
6.09
3.58
3.58
3.66
2.89
4.14
Iran
6.67
7.55
7.55
7.83
6.97
6.97
6.97
7.07
7.07
6.86
5.86
Malaysia
3.99
4.77
4.77
5.49
5.49
5.49
5.49
5.49
5.49
6.04
5.30
Mexico
6.22
6.22
6.22
4.04
3.51
3.03
3.03
3.29
3.07
1.56
2.73
Nigeria
6.81
6.81
6.83
6.83
5.31
5.31
4.43
4.43
4.98
3.84
3.92
Pakistan
6.43
8.39
5.45
5.45
4.93
3.49
3.49
3.49
4.03
3.90
4.33
Philippines
4.26
5.58
5.58
5.58
2.87
1.79
1.62
1.62
2.61
0.98
2.51
Qatar
7.77
7.74
7.27
7.27
7.31
7.31
6.16
6.16
6.16
6.80
7.17
Saudi Arabia
7.30
7.30
7.63
7.63
7.63
7.63
8.07
8.07
8.05
8.36
8.33
South Africa
2.82
2.82
2.82
2.82
2.41
2.41
1.77
1.77
2.55
1.84
1.87
Thailand
3.96
3.96
3.96
3.96
2.73
2.46
2.44
3.11
3.11
3.60
3.67
Turkey
5.49
5.49
4.50
3.43
3.08
3.08
3.08
2.79
2.36
3.46
3.50
UAE
10.00
8.57
8.55
8.55
8.55
8.54
8.56
5.49
5.49
5.55
5.55
Venezuela
2.58
5.11
5.11
5.11
4.71
4.14
5.22
6.49
5.90
6.82
7.96
Note: All data from the Fraser Institute, Economic Freedom of the World: 2021 Annual Report, available at fraserinstitute.org, accessed November
3, 2021. We have selected representative countries from each category of development where there is variation in state ownership levels over time.
The state ownership data is based on the index of state ownership constructed by the Fraser Institute, which is equal to (Vi − Vmin) / (Vmax −
Vmin) multiplied by 10; where Vi is the country’s state ownership score, while the Vmax and Vmin are set at 2.5 standard deviations above and
below the average, respectively. We transformed the index so that 0 represents less state ownership and 10 represents more ownership (by
subtracting 10 and multiplying the result by -1).
43
Table 4. Top 25 state-owned firms by revenue
Rank
Global
rank
Name
Country
Revenues,
USD bn
Profit, USD
bn
Assets, USD
bn
Employees,
th
1
2
Sinopec Group
China
407.0
6.8
317.5
582.6
2
3
State Grid
China
383.9
8.0
596.6
907.7
3
4
China National Petroleum
China
379.1
4.4
608.1
1344.4
4
6
Saudi Aramco
Saudi Arabia
329.8
88.2
398.3
79.0
5
7
Volkswagen
Germany
282.8
15.5
547.8
671.2
6
18
China State Construction Engineering
China
205.8
3.3
294.1
335.0
7
21
Ping An Insurance
China
184.3
21.6
1180.5
372.2
8
24
Industrial & Commercial Bank of China
China
177.1
45.2
4322.5
445.1
9
30
China Construction Bank
China
158.9
38.6
3651.6
370.2
10
35
Agricultural Bank of China
China
147.3
30.7
3571.5
467.6
11
43
Bank of China
China
135.1
27.1
3268.8
309.4
12
45
China Life Insurance
China
131.2
4.7
648.4
180.4
13
50
China Railway Engineering Group
China
123.3
1.5
153.0
302.4
14
52
SAIC Motor
China
122.1
3.7
121.9
151.8
15
53
Fannie Mae
USA
120.3
14.2
3503.3
7.5
16
54
China Railway Construction
China
120.3
1.4
155.6
364.9
17
55
Gazprom
Russia
118.0
18.6
352.4
473.8
18
60
Japan Post Holdings
Japan
109.9
4.4
2647.3
245.5
19
62
Nippon Telegraph and Telephone
Japan
109.4
7.9
213.0
319.0
20
64
China National Offshore Oil
China
108.7
7.0
184.9
92.1
21
65
China Mobile Communications
China
108.5
12.1
266.2
457.6
22
76
Rosneft Oil
Russia
96.3
10.9
208.5
335.0
23
78
China Communications Construction
China
95.1
1.3
232.1
197.3
24
79
China Resources
China
94.8
3.6
232.3
396.5
25
86
Deutsche Telekom
Germany
90.1
4.3
191.6
210.5
Source: Data from Fortune (https://fortune.com/global500/2020/) accessed on September 13, 2020. The list includes only publicly traded firms.
44
Table 5. Sovereign wealth funds around the world
Country
Number of sovereign wealth funds
Sovereign wealth funds’ assets (USD bn)
Advanced economies
Australia
5
275
Canada
2
14
Denmark
0
4
Finland
1
8
France
1
34
Japan
1
0
Netherlands
0
0
Norway
2
1187
Singapore
2
821
South Korea
1
157
Sweden
0
0
UK
0
0
USA
22
230
Transition economies
Bulgaria
0
0
China
8
2269
Kazakhstan
4
145
Poland
0
0
Russia
2
169
Turkmenistan
1
1
Uzbekistan
1
15
Developing economies
Argentina
0
0
Bahrain
2
19
Brazil
0
0
Chile
2
21
Colombia
2
19
India
1
2
Indonesia
0
0
Jordan
0
0
Kuwait
3
574
Malaysia
2
37
Mexico
1
7
Peru
1
5
Philippines
0
0
Oman
3
48
Qatar
1
345
South Africa
1
2
Saudi Arabia
2
819
Thailand
0
0
Turkey
1
34
UAE - Abu Dhabi
3
1005
UAE - Dubai
3
354
Source: Data from Global SWFs (www.globalswf.com) accessed on 17 July 2020.
45
Table 6. Top sovereign wealth funds by assets under management
Rank
Name
Country
Founding
Assets under management, USD bn
1
Norway Government Pension Fund Global
Norway
1990
1108.7
2
China Investment Corporation
China
2007
940.6
3
Abu Dhabi Investment Authority
Abu Dhabi, UAE
1976
579.6
4
Kuwait Investment Authority
Kuwait
1953
533.7
5
Hong Kong Monetary Authority Investment Portfolio
Hong Kong
1935
528.1
6
GIC Private Limited
Singapore
1981
453.2
7
Temasek Holdings
Singapore
1974
417.4
8
Public Investment Fund
Saudi Arabia
1971
390.0
9
National Council for Social Security Fund
China
2000
325.0
10
Investment Corporation of Dubai
Dubai, UAE
2006
305.2
11
Qatar Investment Authority
Qatar
2005
295.2
12
Mubadala Investment Company
Abu Dhabi, UAE
2002
232.2
13
Brunei Investment Agency
Turkey
2016
222.3
14
National Welfare Fund
Russia
2008
165.4
15
Korea Investment Corporation
Korea
2005
157.3
16
Future Fund
Australia
2006
110.6
17
National Development Fund of Iran
Iran
2011
91.0
18
Alberta Investment Management Corporation
Canada
2008
86.3
19
Alaska Permanent Fund Corporation
USA
1976
67.3
20
Samruk-Kazyna
Kazakhstan
2008
63.1
21
Kazakhstan National Fund
Kazakhstan
2000
61.1
22
Brunei Investment Agency
Brunei
1983
60.0
23
Libyan Investment Authority
Libya
2006
60.0
24
University of Texas Investment Management Company
USA
1996
48.4
25
Texas Permanent School Fund
USA
1854
46.5
Source: Data from SWFI (https://www.swfinstitute.org/fund-rankings/sovereign-wealth-fund) accessed on September 13, 2020.
46
Table 7. Future research questions to answer in the study of state-owned multinationals and
sovereign wealth funds
Topic
Suggested research questions
Home Government: Endowments, Characteristics, and Attitudes
Endowments
Which country characteristics lead to the creation and internationalization of a state-owned multinational/ sovereign
wealth fund?
What country characteristics help a state-owned multinational/sovereign wealth fund work better in achieving business or
nonbusiness objectives abroad?
Which channels are the most effective for home country governments in using state-owned multinationals/sovereign
wealth funds to facilitate the development of the domestic economy through foreign expansion?
How do international operating strategies of state-owned multinationals/sovereign wealth funds evolve over time/ with the
level of economic development/ in response to economic development in home countries?
Characteristics
How do a political regime and its change in the government affect the international strategies of state-owned
multinationals/sovereign wealth funds?
Attitudes
Why do some governments exert control on the foreign expansion of state-owned multinationals/sovereign wealth funds,
while others give them autonomy so that they internationalize like private firms?
Host Country Expansion: Support, Influence, and Impact
Support
What is the effect of government ownership and support on the riskiness of foreign investments by sovereign wealth funds
and state-owned multinationals?
What are the coordination mechanisms among foreign investments from the same industry by sovereign wealth funds and
state-owned multinationals that reinforce state influence in that industry abroad?
How do industry characteristics of host countries (technological orientation, regulation, or level of competition) affect the
internationalization and performance of state-owned multinationals/sovereign wealth funds?
Influence
How do governments as foreign investors affect host country governments?
How do state-owned multinationals/sovereign wealth funds address market imperfections abroad?
How do the political and commercial expertise of the top management team and board affect the internationalization and
performance of state-owned multinationals/sovereign wealth funds in comparison to private funds/ multinationals?
How does CEO succession affect the internationalization strategy of state-owned multinationals/sovereign wealth funds?
How does the ideology of the state-owned multinationals/sovereign wealth funds affect the behavior of managers of
foreign subsidiaries/ foreign-invested firms?
How do the political connections and ideology of top management teams affect the foreign strategy and performance of
state-owned multinationals/sovereign wealth funds?
How do the strategies of state-owned multinationals/sovereign wealth funds change industry characteristics in host
countries?
Impact
How can host governments manage the trade-offs between the benefits of investments by state-owned
multinationals/sovereign wealth funds and the costs of interference by the home government of state-owned
multinationals/sovereign wealth funds?
Home-Host Country Relations: Conflicts, Mediation, and Disguising
Conflicts
How can governments use evaluations and other informal political restrictions to limit hostile governments’ foreign
investments?
What are the institutional varieties in responses to foreign investments by state-owned multinationals and sovereign wealth
funds?
Mediation
How can state-owned multinationals/sovereign wealth funds reduce the negative impact of conflict between home and host
countries?
How do changes in bilateral relations between home and host countries affect the strategies and performance of state-
owned multinationals/sovereign wealth funds?
Disguising
How do host country governments or citizens react to state-owned multinationals/sovereign wealth funds entry?
How do state-owned multinationals/sovereign wealth funds respond to these reactions?
How do the different strategies of discreet power of home governments affect host countries?
Management: Orientation, Opacity, and Arbitrage
Orientation
How does the internationalization of state-owned multinationals affect the degree of their efficiency, budget constraints,
and decision-making independence?
How does the time horizon of state-owned multinationals/ sovereign wealth funds affect the time horizon of strategic
decision-making of managers in foreign subsidiaries/ foreign target firms?
Opacity
How do sovereign wealth fund corporate governance characteristics lead to better foreign investment performance relative
to private funds?
What are the mechanisms to mitigate foreign shareholder expropriation through sovereign wealth funds?
Arbitrage
How does the management coordination of foreign subsidiaries of state-owned multinationals/foreign targets of sovereign
wealth funds differ from foreign subsidiaries of multinational companies or foreign-invested firms of private funds?
How do the strategies of foreign subsidiaries of state-owned multinationals/foreign targets of sovereign wealth funds differ
from foreign subsidiaries of multinational companies or foreign-invested firms of private funds?
How do the characteristics of state-owned multinationals/sovereign wealth funds affect internationalization in comparison
to private funds or private multinational companies?
How do sovereign wealth funds decide on their foreign portfolio allocations among the different asset classes in
comparison to private funds?
47
Table 8. Theoretical bridges between state-owned multinationals and sovereign wealth funds
Insights from state-owned
multinationals
Insights from sovereign
wealth funds
Cross-fertilization from
state-owned
multinationals to
sovereign wealth funds
Cross-fertilization from
sovereign wealth funds
to state-owned
multinationals
Agency
State-owned multinationals
suffer from multilevel
principal-agent problems
among citizens, politicians,
and managers, with an
additional principal-principal
conflict for minority state-
owned firms that reduce their
competitiveness and thus
limit internationalization.
The internationalization of
state-owned firms implies that
management of international
and distant investments is
delegated down the line to the
manager of that investee firm
or subsidiary
Sovereign wealth funds
suffer from a multi-
principal agency among the
government and private
investors in target firms
that create conflicts in the
invested firms.
The autonomy and
attention of sovereign
wealth funds’ managers
differ depending on the size
and type of investment
Analyze sovereign
wealth funds’ multilevel
problems among their
managers, citizens, and
politicians, and managers
of sovereign wealth fund-
invested firms
Analyze state-owned
multinationals’ multi-
principal conflicts in
partially state-owned
firms and subsidiaries
abroad.
Analyze investment
decisions by state-owned
multinationals involving
indirect stakes in
complex ownership
pyramids.
Transaction cost
economics
State-owned multinationals’
cost of transacting is
decreased due to better
control by the government of
fraudulent behavior within
state-owned multinationals,
and that facilitates their
ability to transact with
governments in other
countries
Sovereign wealth funds can
deal with higher levels of
risks due to the support of
the government; target
firms and recipient
countries benefit from
lower transaction costs,
patient capital, and access
to sovereign wealth funds’
transacting markets
Analyze sovereign
wealth funds’ transaction
costs savings from
investing in countries
with high government
intervention
Analyze how the costs of
transacting for state-
owned multinationals in
host countries is reduced
from access to state-
owned multinationals
home countries
Resource-based
view
State-owned multinationals
benefit from more accessible
access to state resources and
use this to support their
foreign expansion
Sovereign wealth funds
help reduce the resource
curse in the country
because they diversify risk
in global investments
Analyze sovereign
wealth funds’ access to
state resources advantage
effect on the selection of
investments
Analyze state-owned
multinationals’ ability to
reduce the resource needs
of the home country via
their foreign investments
Resource
dependence
State-owned multinationals
depend on the state for
support and decision making
that limits their ability to
internationalize
Sovereign wealth funds
decrease dependence and
political interference by the
government via foreign
investments
Analyze sovereign
wealth funds’ increased
dependence on
government support in
foreign investments
Analyze state-owned
multinationals decreased
political interference in
their foreign investments
Neo-institutional
State-owned multinationals
suffer from a lower
legitimacy in host countries
that limits their ability to
control firms abroad.
Home country institutions
shape the ability of
stakeholders to monitor and
influence the
internationalization of state-
owned multinationals.
Minority state ownership adds
a layer of complexity to the
institutional moderation of the
ownership –
internationalization
relationship
Sovereign wealth funds are
used as tools to influence
the legitimacy of the home
country abroad, or as tools
of their home country
geopolitical and national
economic development
Analyze sovereign
wealth funds’ lower
legitimacy across host
countries that limits the
size of their investments.
Analyze institutional
diversity established
through the varieties of
capitalism, and how it
moderates the ownership
– internationalization
relationship in sovereign
wealth funds
Analyze state-owned
multinationals’ use as
tools to change the
legitimacy of the
government; or as
enablers of national
economic development
48
Table 9. Types of strategies of state-owned multinationals and sovereign wealth funds to achieve discreet
power
Orientation
Inward
Outward
Goal
Social
RECOGNITION
The government uses state-owned multinationals and
sovereign wealth funds to improve the country’s
recognition by other countries
VALUES
The government uses state-owned multinationals and
sovereign wealth funds to spread its ethical and social
values to other countries
Economic
DEVELOPMENT
The government uses state-owned multinationals and
sovereign wealth funds to facilitate the country’s
development
SUPREMACY
The government uses state-owned multinationals and
sovereign wealth funds to achieve supremacy in other
countries
49
ONLINE APPENDIX TO ACCOMPANY
“A REVIEW OF THE INTERNATIONALIZATION OF STATE-OWNED FIRMS AND
SOVEREIGN WEALTH FUNDS: GOVERNMENTS NONBUSINESS OBJECTIVES AND
DISCREET POWER”
November 4, 2021
RESEARCH DESIGN AND PAPERS ANALYZED
We perform a content analysis of past literature on the internationalization of state-owned firms
and sovereign wealth funds to better understand the current conceptualization of the government as a
foreign investor. Content analysis is a technique that enables us to identify the argument of studies
regardless of the methodology they used, and thus we review theoretical, qualitative, and quantitative
articles (Duriau, Reger, & Pfarrer, 2007; Gaur & Kumar, 2018). We do not do a meta-analysis because this
technique is restricted to quantitative research (Geyskens, Krishnan, Steenkamp, & Cunha, 2009; Lipsey &
Wilson, 2001).
Mapping the connections among these two streams of literature reveals a significant opportunity to
establish bridges that past studies seem to have overlooked. We use the VOSviewer tool (VOSViewer,
2019) to visualize relationships among academic articles. We first run a search in Web of Science of peer-
reviewed articles that have the keywords “state-owned multinational” and “internationalization” or
“sovereign wealth fund” and “internationalization” in the abstract. This search yields 260 articles. We then
create a map based on bibliographical data with the ris format, using the co-occurrence and full counting
method and selecting a minimum of five occurrences of a keyword. Figure A provides the relationships
among topics. We find a large cluster around government business enterprise and its connections to foreign
investments, internationalization, and globalization, a secondary cluster that connects state-owned
enterprises, international business enterprise, and emerging markets, and a third smaller cluster on
sovereign wealth funds and business enterprises.
50
Figure A. Connections among the streams of literature analyzing state-owned multinationals and
sovereign wealth funds
Note: The distance between two items in the visualization approximately indicates the relatedness of the items in terms of co-citation links. In
general, the closer two items are located to each other, the stronger their relatedness. The strongest co-citation links between items are also
represented by lines. There are three clusters: a red cluster around government business enterprise and its connections to foreign investments,
internationalization, and globalization, a green cluster that connects state-owned enterprises, international business enterprise, and emerging
markets, and a third smaller cluster in blue on sovereign wealth funds and business enterprises.
Following the recommendations of previous content analysis research (Canabal & White III, 2008;
Terjesen, Hessels, & Li, 2016), we use five steps. In the first step we select journal articles published in
English that appeared in scholarly journals listed in EBSCO and that contained the keywords ‘state-owned’
& ‘multinational’, ‘state-owned multinational’, ‘state-owned’ & ‘foreign investment’, ‘state-owned’ &
‘foreign direct investment’, ‘state-owned’ & ‘foreign portfolio investment’, ‘state-owned’ & ‘cross-border
acquisitions’, ‘state-owned’ & ‘international alliance’, ‘state-owned’ & ‘international joint ventures’,
‘state-owned’ & ‘internationalization’, ‘government-linked’ & ‘multinational’, ‘government-linked
multinational’, ‘government-linked’ & ‘foreign direct investment’, ‘government-linked’ & ‘foreign
portfolio investment’, ‘government-linked’ & ‘cross-border acquisitions’, ‘government-linked’ &
‘international alliance’, ‘government-linked’ & ‘international joint ventures’, ‘government-linked’ &
‘internationalization’, ‘sovereign wealth fund’ & ‘foreign investment’, ‘sovereign wealth fund’ &
‘internationalization’, ‘sovereign wealth fund’ & ‘investment abroad’, ‘state pension fund’ & ‘foreign
investment’, ‘state pension fund’ & ‘internationalization’, ‘state pension fund’ & ‘international’, or ‘state
pension fund’ & ‘investment abroad’.
In the second step, we restrict articles to those published in top journals in management, economics,
economic geography, finance, and international business. We consider top journals as those in the Financial
Times Top 50 journals list (Ormans, 2016): Academy of Management Journal (AMJ), Academy of
Management Review (AMR), Administrative Science Quarterly (ASQ), American Economic Review
(AER), Econometrica (E), Journal of Finance (JF), Journal of Financial and Quantitative Analysis (JFQA),
Journal of Financial Economics (JFE), Journal of International Business Studies (JIBS), Journal of
51
Management (JOM), Journal of Management Studies (JMS), Journal of Political Economy (JPE),
Management Science (MS), Quarterly Journal of Economics (QJE), Organization Science (OS),
Organization Studies (OrgS), Review of Economic Studies (RES), Review of Finance (RF), Review of
Financial Studies (RFS), and Strategic Management Journal (SMJ). We complement this list with other
top journals in management, economics, economic geography, political economy, finance, and international
business, considering those ranked as three or above in the list of the Association of Business Schools
(CABS, 2019) as done previously (Gaur & Kumar, 2018; Tüselmann, McDonald, & Thorpe, 2006).
In the third step, we read the titles and abstracts of all articles, and if the article appears to analyze
the internationalization of state-owned firms or sovereign wealth funds, we study its content to make sure
that it focuses on our topic of interest. From this step, we end up with 73 articles analyzing the
internationalization of state-owned firms and 26 on the internationalization of sovereign wealth funds.
In the fourth step, we analyze the content of the articles and systematically summarize their ideas
to facilitate the identification of insights and the comparison of the arguments and conclusions. We organize
the summary under the following categories: article (author, year, publication), research question; sample
(if quantitative); and main arguments and findings. Tables A and B summarize the papers analyzed on the
internationalization of state-owned multinationals and sovereign wealth funds, respectively.
In the fifth step, we review other relevant articles, book chapters, and books and build on their ideas
when appropriate. However, we do not include them in the summary tables since they were not published
in the journals included in our research design.
52
Table A. Summary of selected studies on the internationalization of state-owned multinationals
Author (Year)
Journal
Research Question
Sample
Main Arguments and Findings
Franko (1975)
JIBS
To what degree policies of
home governments, rather than
markets, condition
internationalization of state-
owned enterprises
Not applicable
State-owned enterprises internationalize to
pursue industrial policy goals such as
securing natural resource access.
Mazzolini
(1979)
JIBS
Explain the behavior of
European government-
controlled enterprises
123 state-owned enterprises
in nine European countries in
1975-1979
State-owned enterprises are constrained in
focusing at home, going abroad to obtain
resources, support the currency. Foreign
investments require approval and are
bureaucratic.
Vernon (1979)
JIBS
Identify the practices of state-
owned enterprises
Not applicable
State-owned enterprises are created as
national champions, fiscal agents,
monopolists, industrialization promoters,
bilateral trades, which creates a multiplicity
of goals, leading to the use of domestic
inputs, exports, and support other state-
owned enterprises, leading to lower
international competitiveness.
Zutshi and
Gibbons
(1998)
APJM
The internationalization
process of state-owned
enterprises in Singapore
Two government-linked
companies in Singapore
Internationalization is a direct response to
the government’s policy. The state-owned
enterprises are direct arms and modalities
for implementing such government policies.
Aharoni
(1980)
JWB
State-owned enterprises as
competitors in the international
market
Not applicable
New competitors that deserve more
attention.
Mazzolini
(1980)
JIBS
Analyze the leadership
influence of state-owned
enterprises in their
internationalization
124 state-owned enterprises
in nine European countries in
1975-1979
Politicians are short-term oriented, seek
visible results, and take partisan views,
leading to less internationalization, more
employment, and unclear decisions.
Mazzolini
(1980)
SMJ
Why state-owned enterprises
internationalize and what is
special about their
internationalization
125 state-owned enterprises
in nine European countries in
1975-1979
State ownership reduces internationalization
as information processed and bureaucracy
are focused on home, with politics further
constraining internationalization.
Rugman
(1983)
MIR
What are the differences in the
performance of US and
European multinationals
50 US multinational
companies and 50 European
multinational companies, of
which 14 are state-owned
enterprises, in 1970-1979
European multinationals are less profitable
than US ones because of the presence of
state-owned enterprises among European
multinationals.
Buckley,
Clegg, Cross,
Liu, Voss, and
Zheng (2007)
JIBS
What are the determinants of
Chinese outward foreign direct
investment
Data on Chinese outward
foreign direct investment, in
1984-2001
Cultural proximity is an important
determinant of internationalization for
Chinese state-owned enterprises. The low
cost of capital of Chinese state-owned
enterprises allows them to invest in host
countries with higher political risk.
Phelps (2007)
EG
What are the benefits from
internationalization thorough
state-owned enterprises
Case studies of Singapore–
host country joint-venture
industrial and technology
parks in China, Vietnam,
Indonesia, and India,
involving government-linked
companies
The economic benefits to Singapore from
its overseas joint-venture parks have been
modest.
Buckley,
Cross, Tan,
Xin, and Voss
(2008)
MIR
Is Chinese outward foreign
direct investment a Special
Case of Emerging Country
outward foreign direct
investment?
Data on Chinese outward
foreign direct investment
The strategic behavior of Chinese
multinational companies (largely state-
owned) is increasing, superseding behavior
under classic internationalization theory.
García‐Canal
and Guillén
(2008)
SMJ
Risk and the strategy of
foreign location choice of
firms in regulated industries
101 Latin American market
entries of all listed Spanish
firms in regulated industries,
in 1987-2000
Firms in regulated industries expand into
countries characterized by governments
with discretionary policymaking to be able
to negotiate favorable conditions of entry.
Minority-owned state enterprises exhibit a
more tolerant attitude to risk.
Meyer and
Altenborg
(2008)
JIBS
How state-owned enterprises'
national governance structures
A failed merger between two
state-owned Scandinavian
telecom firms
Cross-border acquisitions with good
organizational fit can still fail because of
strategic incompatibility.
53
Author (Year)
Journal
Research Question
Sample
Main Arguments and Findings
lead to incompatible strategies
in a merge
Morck, Yeung,
and Zhao
(2008)
JIBS
What is the perspective on
China's outward foreign direct
investment
Not applicable
State-owned enterprises are the major
players in China's outward foreign direct
investment, and with their vast experience
in navigating complex bureaucracies, they
might do well in countries with similar
institutional environments.
Rui and Yip
(2008)
JWB
What is the strategic intent
perspective of cross-border
acquisitions led by Chinese
firms
Lenovo, Nanjing Automobile,
and Huawei
The internationalization of both state-owned
enterprises and private firms is driven by a
strategic intent perspective.
Cuervo-
Cazurra and
Dau (2009)
MIR
How do pro-market reforms
affect firm exports
Latin American firms in
1990-2006
Pro-market reforms support exports, but
state-owned enterprises benefit less
Wan and
Wong (2009)
JCF
Examines the stock price
reaction of US oil companies
to US sanction towards the
acquisition by CNOOC (a
Chinese state-owned
enterprise) of Unocal (a US
firm)
66 US oil and gas exploration
firms and 13 US oil refining
firms
The shares of the US oil firms reacted
unfavorably to the political sanction
towards the acquisition by CNOOC (a
Chinese state-owned enterprise) of Unocal
(a US firm).
Chen and
Young (2010)
APJM
How principal–principal
conflicts in state-owned
enterprises affect their
international acquisition
performance
39 transactions undertaken by
32 Chinese publicly listed
companies
Government ownership invokes a negative
market reaction during a merger. Such
negative effects are strengthened when
state-owned enterprises operate in a
competitive environment.
Kalotay and
Sulstarova
(2010)
JIM
What is the role of state
ownership in Russian outward
foreign direct investment
Cross-border acquisitions
data with Russian firms as
ultimate buyers
State-owned or -influenced multinational
companies dominate Russian outward
foreign direct investment to control the
value chain.
Luo, Xue, and
Han (2010)
MIR
What are the factors driving
private firms from emerging
markets to internationalize?
1613 Chinese firms
Emerging market private firms that have
acquired state-owned enterprises at home
are more likely to internationalize.
Zhang, Zhou,
and Ebbers
(2011)
IBR
How do institutional factors
influence the likelihood that
Chinese overseas acquisition
deals are completed?
1324 announced Chinese
cross-border acquisitions
during 1982-2009
Chinese state-owned acquirers lower the
likelihood of completing cross-border
acquisitions.
Cui and Jiang
(2012)
JIBS
How state ownership affects
Chinese firms’ foreign direct
investment ownership
132 foreign direct investment
entries in 2002-2006
State ownership increases home and host
regulatory pressure on selecting joint
ventures.
Duanmu
(2012)
JWB
Impact of location
characteristics on Chinese
multinational company
investments
264 location choices by 189
Chinese multinational
companies in 47 countries in
1999-2008
State-owned enterprises are affected more
by foreign exchange than private firms in
location decisions.
Ramasamy,
Yeung, and
Laforet (2012)
JWB
What are the differences in
international location decision
between state-owned and
private Chinese listed firms
63 firms with foreign
investments in 2006-2008
(1350 projects in 59
countries)
Central and local state-owned enterprises
have more foreign direct investment
projects in politically unstable countries
than private firms.
Wang, Hong,
Kafouros, and
Wright (2012)
JIBS
How the government impacts
the internationalization of
firms from emerging markets
626 Chinese firms with
foreign direct investment
from Annual Report of
Industrial Enterprise Statistics
and Chinese Ministry of
Commerce
Higher-level government affiliation leads to
more outward foreign direct investment and
reinforces the impact of marketing and
R&D investments. Government ownership
does not lead to more outward foreign
direct investment but reinforces the impact
of R&D investments and efficiency.
Bass and
Chakrabarty
(2014)
JIBS
How multinationals acquire
scarce resources
404 cross-border transactions
in the oil industry in 2005-
2012
State-owned enterprise investments are
driven by natural resource security.
Choudhury
and Khanna
(2014)
JIBS
Why state-owned enterprises
seek internationalization
42 Indian state-owned
laboratories from 1995 to
2006
State-owned enterprises internationalize to
gain resource independence from other state
actors.
Colli, Mariotti,
and Piscitello
(2014)
JEPP
How does a country’s form of
capitalism influences the
internationalization of state-
owned enterprises
Incumbents in the
energy and
telecommunications
industries in France,
Coordinated market economies and state-
influenced market economies promote
internationalization, while liberal market
economies act through laissez-faire
policies.
54
Author (Year)
Journal
Research Question
Sample
Main Arguments and Findings
Germany, Italy, Spain, and
the UK 1999-2013
Cuervo-
Cazurra et al
(2014)
JIBS
How the study of state-owned
multinationals advances theory
Not applicable
State-owned multinationals ownership
alters assumptions of models and can help
extend theories by challenging assumptions.
Duanmu
(2014)
JIBS
How host country
expropriation risk affects
investment decisions
894 greenfield projects by
Chinese firms
State-owned enterprises are less affected by
expropriation risk in foreign investments.
Meyer, Ding,
and Li (2014)
JIBS
How state-owned enterprises
overcome discrimination
abroad
386 subsidiaries of Chinese
listed state-owned and private
firms in 2009
State-owned enterprises use more
acquisitions, especially in countries with
less technology and less shareholder
protection.
Zhang and He
(2014)
IBR
How the evolution of
regulations in light of the
nationalism impact cross-
border acquisitions
7275 cross-border acquisition
involved 76 countries during
1985-2010
A good diplomatic relation between a
foreign acquirer and the Chinese
government increases the likelihood of
completing cross-border acquisitions in
China.
Du and
Boateng
(2015)
IBR
Whether state-owned
enterprises create value for
Chinese acquiring firms in
cross-border acquisitions
468 cross-border acquisitions
during 1998-2011
State ownership creates value in cross-
border acquisitions, and liberalization of the
foreign exchange approval system enhances
state-owned enterprise’s internationalization
by lowering the cost of doing business.
Lai, O'Hara,
and
Wysoczanska
(2015)
APJM
What drives the
internationalization of China’s
two biggest national oil
companies
Two Chinese national oil
firms, Sinopec and CNPC,
during 2002-2010
Strategic assets and efficiency are the
primary motives for Chinese state-owned
outward foreign direct investments.
Liang, Ren,
and Sun
(2015)
JIBS
How state ownership and
political ties affect
internationalization before and
after reform
2394 publicly traded Chinese
firms in 2001-2011
Firms with some government control
internationalize more after reform, and
firms with political connections
internationalize before the reform and less
after the reform.
Wei, Clegg,
and Ma (2015)
JIBS
How the Chinese government
influences the
internationalization of state-
owned and private firms
Two state-owned enterprises
and two private Chinese
multinationals in 2008-2014
Conscious government support of state-
owned enterprises via finance and
regulation enables state-owned enterprises
internationalization and to become
dominant players. Unconscious
overprotection of state-owned enterprises
helps private firms internationalize and to
become market explorers.
Benito, Rygh,
and Lunnan
(2016)
GSJ
Comparison of benefits of
internationalization
30 publicly traded Norwegian
firms in 2000-2010
State-owned enterprises appear to benefit
more from internationalization than private
firms.
Estrin, Meyer,
Nielsen, and
Nielsen (2016)
JWB
Impact of institutions on state-
owned firm
internationalization
Matched sample of 153
majority-owned state-owned
enterprises and 153 private
publicly traded firms from 40
countries
Home country normative, regulatory, and
governance controls induce state-owned
enterprises to invest more abroad.
He, Eden, and
Hitt (2016)
JIM
Institutional investors
compensate for state
ownership and lead to more
internationalization
253 state-owned
multinationals in 42 countries
in 2002-2007
State-owned multinationals with
institutional ownership have more
international diversification in developed
but not developing countries.
Liu, Gao, Lu,
and Lioliou
(2016)
JWB
Studies investment of firms
from emerging markets in
risky countries
206 Chinese firms with
investments in 58 foreign
countries
State-owned enterprise localization is more
sensitive to industry risk than private firms.
Rudy, Miller,
and Wang
(2016)
GSJ
What motivates state-owned
enterprises to undertake
foreign direct investment
Not applicable
Wholly owned state-owned enterprises
invest abroad to obtain strategic assets and
control supply.
Shi,
Hoskisson, and
Zhang (2016)
GSJ
What explains the opposition
to foreign state-owned
enterprises investments
Not applicable
Opposition to state-owned enterprises in the
target country is weaker with geographic
distance, religious similarity, political
regime similarity, and resource
complementarity, and these are weakened
by nationalist politics.
Del Bo,
Ferraris, and
Florio (2017)
JCE
Does government ownership
matter in the market for
corporate control?
31,479 M&A deals in 138
countries in 2004-2012
Deals involving state-owned enterprises are
clearly different from the benchmark of
private–private deals, due to the greater
assets, higher solvency ratios, broader
55
Author (Year)
Journal
Research Question
Sample
Main Arguments and Findings
experience of deals, and closer proximity to
targets of the acquirers.
Finchelstein
(2017)
JWB
How different state actions
support firm
internationalization
51 large firms from
Argentina, Brazil, and Chile
in 2015
Direct actions and indirect actions support
internationalization with different effects
across countries because of the variety of
public policies.
Hennart,
Sheng, and
Carrera Jr
(2017)
JWB
How liberalization in Latin
America led to state-owned
multinationals
173 firms in 2002-2011
Government ownership leads to higher
internationalization through direct
ownership and indirect ownership via
investment bank and pension funds,
reinforced by family ownership.
Huang, Xie,
Li, and Reddy
(2017)
IBR
How state ownership supports
outward foreign direct
investment
507 publicity traded Chinese
manufacturing firms in 2007-
2013
State-owned enterprises have fewer new
foreign subsidiaries, especially central state-
owned enterprises, but more if facing more
institutional development and market
competition.
Karolyi and
Liao (2017)
JCF
What are the drivers and
consequences of cross-border
acquisitions led by
government-controlled
acquirers
27786 announced cross-
border acquisitions during
1990 - 2008 with a total deal
value equal to USD9.04
trillion
The motives behind the cross-border
acquisitions led by government-controlled
acquirers differ little from those by
corporate acquirers. Short-term market
reaction towards deals led by government-
controlled acquirers are similar to those by
corporate acquirers.
Li, Xia, and
Lin (2017)
SMJ
How state ownership affects
the completion of cross-border
M&As
Matched sample of 914 cross-
border acquisitions in the US
in 1990-2012
State-owned enterprises complete more
cross-border deals than private firms, but
less if target is public, in R&D alliance and
more if state-owned enterprises have
acquisition and alliance experiences in host
countries; but no difference in duration of
completion.
Pinto, Ferreira,
Falaster,
Fleury, and
Fleury (2017)
JWB
How does government support
affect ownership in cross-
border acquisitions
262 cross-border acquisitions
by Brazilian firms in 2006-
2012
Government stock and political ties
individually lead to full acquisitions.
Xie and Li
(2017)
APJM
How emerging market
multinationals imitate each
other entry mode
608 cross-border acquisitions
by Chinese firms from 1987
to 2008
Previous home country majority
acquisitions lead to more majority
acquisitions; previous private majority
Chinese acquisitions lead to more state-
owned enterprises’ majority acquisitions,
and previous state-owned enterprises’
majority acquisitions lead to less state-
owned enterprises’ majority acquisitions.
Arreola and
Bandeira-de-
Mello (2018)
MIR
How minority ownership types
affect internationalization
38 Brazilian traded
multinationals in 2006-2010
and one case study of
sugar/ethanol firm
State institutional investors lead to more
internationalization and state ownership
leads to less internationalization.
Cannizzaro
and Weiner
(2018)
JIBS
Drivers of transparency in
outward foreign direct
investment
965 investment in the oil
industry in 2000-2011
State ownership reduces transparency but
less if the home country is better governed
and state-owned enterprises are less
sensitive to political risk.
Chen,
Musacchio,
and Li (2019)
JM
How do principal-principal
conflicts amongst blockholders
impact the cross-border
acquisition activity of state-
owned enterprises
7,564 cross-border
acquisitions in 2004-2013
Conflicts among different blockholders in
state-owned enterprises make it difficult to
pursue large-scale, cross-border deals.
Buckley,
Clegg, Voss,
Cross, Liu, and
Zheng (2018)
JIBS
A review and agenda for future
research on international
investments by Chinese state-
owned enterprises and
multinationals
Not applicable
Earlier internationalization was allowed
only for state-owned enterprises (1984-
2001), driven by market and resource
considerations. In later periods, the Chinese
government continued to influence the
selection of host countries for investment by
multinationals, both state-owned and
private. This was facilitated by China’s
foreign trade agreements with host
countries. The internationalization of state-
owned enterprises aligned with China’s
imperatives, but limited direct benefits and
spillovers in the host country
56
Author (Year)
Journal
Research Question
Sample
Main Arguments and Findings
Clegg, Voss,
and Tardios
(2018)
JWB
How the home country
autocracy affects state-owned
enterprises internationalization
1386 state-owned enterprises'
and 136146 private cross-
border acquisitions in 1996-
2015 in 25 countries
State-owned enterprises from autocratic
home countries make more cross-border
acquisitions, especially in other autocratic
countries.
De Beule,
Somers, and
Zhang (2018)
MIR
Where do Chinese
manufacturing firms locate
greenfield in Europe
565 greenfield investments by
374 Chinese firms in 2004-
2012 in European Union
Previous investments by private firms in the
same and other sectors drive new
investments in the region.
Deng, Yan,
and van Essen
(2018)
IBR
Impact of political connections
on outward foreign direct
investment
Datasets with outward foreign
direct investment from the
Ministry, merged with data on
publicly traded firms
State-owned enterprises less likely to invest
abroad and private firms with political
connections more likely to invest abroad.
Li, Cui, and Lu
(2018)
JIBS
How central and local state-
owned enterprises differ in
their internationalization
Not applicable
Central state-owned enterprises are subject
to more legitimacy pressures that affect
their internationalization path,
diversification, and entry method.
Li, Xia,
Shapiro, and
Lin (2018)
JWB
How state ownership affects
foreign direct investment
2585 Chinese firms with 1454
foreign subsidiaries in 2001-
2014
State-owned enterprises have fewer foreign
subsidiaries, but more if the province has
more market forces and other state-owned
enterprises have foreign direct investment.
Rodrigues and
Dieleman
(2018)
JWB
How state ownership affects
internationalization
Brazilian mining firm Vale
2008-2015 interviews
State-owned enterprises internationalize to
reduce dependence but the creation of
additional dependence and codependence
with the government leads to a reduction in
internationalization.
Zhou (2018)
MIR
How do hybrid state-owned
enterprises internationalize
1600 listed Chinese state-
owned (more than 5%) firms
in 1991-2016
Majority state-owned enterprises have more
foreign direct investment, reinforce the
impact of ‘go global’ campaign and debt;
and weaken the impact of intangible assets
on number of foreign direct investments.
Grøgaard,
Rygh, and
Benito (2019)
JIBS
Whether entry mode
decisions of state-owned
enterprises differ from
privately owned enterprises
Transactions of assets and
firms in the Canadian oil and
gas industry over 2005-2016
Compared to private firms, state-owned
enterprises tend to prefer acquiring stand-
alone assets rather than firms, and to take
lower ownership shares. The differences
between state-owned enterprises and private
firms diminish when home countries are
characterized by high government quality
and market orientation.
Li, Li, and
Wang (2019)
SMJ
How state ownership affects
cross-border acquisitions
completion outcomes
1,170 deals from 1990 and
2010
The deal completion rate is 14% lower for
state-owned enterprises than non-state-
owned enterprises, and opaqueness
aggravates the negative relationship
between state-owned acquirers and deal
completion.
Mariotti and
Marzano
(2019)
JIBS
Whether entry mode decisions
of state-owned enterprises
differ from privately owned
enterprises
Panel dataset of 99 firms over
1995-2014
State-controlled enterprises internationalize
more (less) than privately owned enterprises
in coordinated (liberal) market economies,
whereas they exhibit inconsistent behavior
in state-influenced market economies.
Parente, Rong,
Geleilate, and
Misati (2019)
JIBS
How multinational companies
sustain operations in
challenging countries
Weihai Chinese state-owned
enterprise in Democratic
Republic of Congo 2011 to
2018
State-owned enterprises succeed in
challenging countries when the home
government supports negotiation and
resource access, with firms
internationalizing by relying on the ethnic
network before building a local network.
Aguilera,
Duran,
Heugens,
Sauerwald,
Turturea, and
VanEssen
(2020)
JWB
When does state ownership
improve firm financial
performance?
Meta-analysis of studies
spanning 53 years and 131
countries
The political ideology of the government,
both independently and in conjunction with
political institutions (state capacity and
political constraint), affects the impact of
state ownership on the performance of state-
owned enterprises.
Cheung, Aalto,
and
Nevalainen
(2020)
JWB
How does a shift in dominant
institutional logic from state to
market logic affect SOEs’
evaluation of international
venture opportunities?
In-depth historical case study
of state-owned Telecom
Finland, based on 54,000
pages of primary sources over
1987-1998
Although state-owned firms can
internationalize to the same extent or even
more than private firms, different rationales
underline their internationalization, and
these rationales might change during long
internationalization processes, influencing
geographical and partner preferences.
57
Author (Year)
Journal
Research Question
Sample
Main Arguments and Findings
Lazzarini,
Mesquita,
Monteiro, and
Musacchio
(2020)
JIBS
Are state-owned enterprises
better at invention than private
firms?
Patent inventions of 521
state-owned enterprises and
matched private firms across
43 countries, over 1997–2012
Patenting by state-owned enterprises at a
base level is more pioneering and frequent
than that of private firms.
Sun, Deng,
and Wright
(2020)
JIBS
Examining how host state
ownership affects both
innovation inputs and outputs
in China-based international
joint ventures
International joint-ventures in
the Chinese manufacturing
sector over 2008–2013
R&D investment can be politically
motivated and symbolically managed to
Ensure continued resource exchanges with
the host state.
Wang,
Kafouros, Yi,
Hong, and
Ganotakis
(2020)
JWB
What is the role of government
affiliation in firm
innovativeness and
profitability in emerging
countries
18,430 Chinese firms over
2005-2007
Affiliation with higher-level governments
enhances firms’ innovativeness, whereas
affiliation with lower-level governments is
effective for enhancing profitability.
Cuervo-
Cazurra and Li
(2021)
JWB
Disentangling theoretical
predictions of the advantage
and disadvantage of stateness
relating to the
internationalization of state-
owned enterprises
Systematic content analysis of
83 articles on state-owned
multinationals
Governments seem to induce state-owned
multinationals to select more challenging
countries. Alignment between firm
strategies and national interests is a
deciding effect in the location choices of
state-owned multinationals. Cross-border
acquisitions seem to result in adverse
reactions.
Wright, Wood,
Musacchio,
Okhmatovskiy,
Grosman, and
Doh (2021)
JWB
What factors represent key
dimensions of state capitalism?
Exploratory factor analysis of
59 countries and seven
variables characterizing direct
state involvement in
economic activities (2014)
Framework of eight initial varieties of state
capitalism according to three dimensions of
state capitalism —the level of government
threat, state ownership, and statism.
Journals: Asia Pacific Journal of Management (APJM), Global Strategy Journal (GSJ), International Business Review (IBR), Journal of Economic
Geography (JEG), Journal of Comparative Economics (JCE), Journal of European Public Policy (JEPP), Journal of International Business Studies
(JIBS), Journal of International Management (JIM), Journal of Management (JM), Journal of World Business (JWB), Management and
Organizational Review (MOR), and Management International Review (MIR), Academy of Management Journal (AMJ), Academy of Management
Review (AMR), Administrative Science Quarterly (ASQ), American Economic Review (AER), Journal of Finance (JF), Journal of Financial
Economics (JFE), Journal of Political Economy (JPE), Management Science (MS), Organization Science (OS), Quarterly Journal of Economics
(QJE), and Strategic Management Journal (SMJ). Adadpted and extended from Cuervo-Cazurra & Li (2021)
58
Table B. Summary of selected studies on the internationalization of sovereign wealth funds
Authors
(Year)
Journal
Research Question
Sample
Main Arguments and Findings
Hebb and
Wójcik
(2005)
EAPA
What is the investment strategy
of global pension funds in
emerging markets
Case study of California
Public Employees
Retirement System
(CalPERS)
In order to mitigate the risks posed by poor
corporate standards of behavior, institutional
investors increasingly apply nonfinancial criteria
not only to individual firms in emerging markets,
but to the corporate practices of whole countries,
by demanding levels of corporate and social
behavior greater than those currently
consistent with countries' regulatory frameworks.
Clark
(2008)
EG
What are the criteria for well-
governed pension funds
internationally
Two public pension
funds and two corporate
pension funds, all
anonymized
There is a premium on good governance in
institutions that rely upon financial markets for
long-term objectives; and a global market for
governance principles and practices.
Dixon
(2008)
NPE
The evolution of French state
pension system
Not applicable
The French pension system is converging towards
the Anglo-American funded model as a response to
increased globalization.
Eaton and
Ming
(2010)
RIPE
How the Chinese government
influences the sovereign wealth
fund investment and
competitive strategies
China
Investment Corporation
(CIC), world’s third
largest sovereign wealth
fund
The sovereign wealth fund was drawn into
competition for high yield, high-risk investments
with the government foreign exchange reserve
management agency. CIC’s investments were
mostly in the domestic bank sector.
Gospel,
Pendleton,
Vitols, and
Wilke
(2011)
CGIR
What are the consequences for
employment when companies
are acquired by private equity,
hedge funds, or sovereign
wealth funds
Three case studies–a
Spanish supermarket
chain, a German
engineering company,
and a UK ports and
logistics group
Greater disclosure and regulation of sovereign
wealth funds are more likely to enhance employee
protection than further labor regulation.
Haberly
(2011)
EAPA
How do governments use
sovereign wealth funds as tools
to promote national
development
Two case studies: Qatar,
Abu Dhabi, and Dubai's
use of sovereign wealth
funds to promote the
development of their
aerospace sectors; and
the deployment of the
China Investment
Corporation as an
instrument of Chinese
raw materials and energy
policy.
Strategically oriented sovereign wealth fund
investment is used by the governments to adapt to
globalization and financialization. The viability of
such a strategy hinges on the way it feeds into the
strategies of target firms and host governments.
Kotter and
Lel (2011)
JFE
What are the target selection
decisions of sovereign wealth
funds
Sovereign wealth funds’
417 investments in 326
firms (some of them
receiving multiple
investments) in 1980-
2009
Sovereign wealth funds prefer multinational
firms, likely due to existing business relations with
them or diversification benefits of multinationals.
Sovereign wealth funds appear to invest in
developed countries.
Monk
(2011)
EAPA
Why sovereign wealth funds
exist?
Not applicable
Sovereign wealth funds exist to preserve local
autonomy and state sovereignty by harnessing the
power of finance as a response to globalization and
financialization. The purposes of sovereign wealth
funds include self-insurance, macroeconomic
stability, budget planning and stabilization, and
long-term commitment to future welfare.
Knill, Lee,
and Mauck
(2012)
JCF
What is the role of bilateral
political relations in sovereign
wealth funds investment
decisions
Over 900 acquisitions of
public and private
targets by sovereign
wealth funds over the
period 1984–2009
Contrary to predictions based on the foreign direct
investment and political relations literature,
political relations matter less for sovereign wealth
funds in determining how much to invest.
Sovereign wealth fund investment has a positive
impact on relatively closed countries.
Knill, Lee,
and Mauck
(2012)
JFI
What is the relationship between
sovereign wealth
fund investment and the return-
to-risk performance of target
firms
130 acquisitions by
sovereign wealth funds
from the inception of
each fund and up to
2009
In cases of foreign investment, sovereign wealth
funds’ target firm performance is more like other
state-owned firms.
Bernstein,
Lerner, and
JEP
How institutional arrangements
influence the investment
29 sovereign wealth
funds that carried out
Sovereign wealth funds with politician
involvement are more likely to invest domestically,
59
Authors
(Year)
Journal
Research Question
Sample
Main Arguments and Findings
Schoar
(2013)
decision policies of sovereign
wealth funds, what is the impact
of politicians involved in fund
management
2,662 transactions in
1984-2007
while those sovereign wealth funds where external
managers play an important role are more likely to
invest internationally. Funds with more politically
connected board members underperform.
Johan,
Knill, and
Mauck
(2013)
JIBS
What is the extent to which
sovereign wealth funds
resemble other institutional
investors when it comes to the
choice between private and
public cross-border investment
The investments of 19
sovereign wealth funds
in 424 public and private
firms around the world,
over 1991- 2010
Unlike other institutional investors, sovereign
wealth funds are more likely to invest in private
equity compared with public equity in countries
where investor protection is low, and where the
bilateral political relations are weak.
Megginson,
You, and
Han (2013)
FR
Country-level determinants of
sovereign wealth fund cross-
border investments
1,590 acquisitions by
sovereign wealth funds
from 15 countries in
listed firms in 78 target
countries over 1985-
2011
Sovereign wealth funds from countries with high
levels of openness and economic development, but
with less developed capital markets, will make
more cross-country transactions, while target
countries with higher levels of investor protection
and more developed capital markets will attract
more sovereign wealth fund investment.
Vasudeva
(2013)
OS
Why responsible investment
constitutes a central feature of
Norway’s Government Pension
Fund Global investment
strategy. To what extent
Norway’s Fund serves as an
instrument of the Norwegian
state in shaping behavioral
norms for Norwegian firms
Data on cross-border
investments for 437
Norwegian firms in 49
industries over 1999–
2010.
By making responsible investments core of its
cross-border investment strategy, Norway’s
Government Pension Fund Global seeks to
establish legitimacy both at home and
internationally. The normative pressure for
responsible investments is mediated by firms’
imitation of the Fund’s investments, but this effect
becomes weaker for state-owned enterprises.
Bertoni and
Lugo
(2014)
JCF
What is the effect of sovereign
wealth funds on the credit risk
of their
portfolio companies
Credit default swap
spreads of 391
investments by
sovereign wealth funds
in 198 firms in 1984-
2010
Political factors significantly affect the magnitude
of the decrease in credit risk: sovereign wealth
funds from authoritarian countries reduce the
credit risk of their investments, and this effect is
offset in some cases by the opacity of sovereign
wealth funds. The political stability of a home
country and a moderate bilateral political
relationship also reduce the credit risk.
Haberly
(2014)
EG
The interaction of home and
host countries’ institutions
through foreign investments by
sovereign wealth funds
Analysis of Gulf
Cooperation Council
sovereign wealth fund
investment in German
industry after the
financial crisis of 2008
German industrial firms, particularly the major
automotive firms, seek long-term sovereign wealth
funds investment as an adaptive response to the
stresses of financial restructuring, and as a pre-
emptive measure against hostile takeovers.
Bortolotti,
Fotak, and
Megginson
(2015)
RFS
How do sovereign wealth funds
perform
33 sovereign wealth
funds from 21 countries,
domestic and
international investments
made by sovereign
wealth funds, and by
sovereign wealth fund
majority-owned
subsidiaries over 1980-
2012.
Cumulative abnormal returns of sovereign wealth
fund equity investments in publicly traded firms
are positive but lower than those of comparable
private investments. Sovereign wealth fund targets
suffer from declining return on assets and sales
growth over the following three years. Larger
discounts are associated with sovereign wealth
funds taking seats on boards and with sovereign
wealth funds under strict government control
acquiring greater stakes.
Aguilera,
Capapé,
and Santiso
(2016)
AMP
Strategic governance topology
of sovereign wealth funds
Not applicable
As a response to agency and legitimacy-related
conflicts, strategic governance of sovereign wealth
funds is organized into 1) shareholder activism, 2)
setting up in-house capabilities, 3) acquiring
legitimacy as institutional investors, and 4) long-
term learning to engage in country-to-country
relations.
Boubakri,
Cosset, and
Grira
(2016)
JIFMIM
Compare sovereign wealth
funds investment decisions and
target selection with pension
funds
344 firms targeted by
sovereign wealth funds
in 1991-2011 to compare
to 663 firms targeted by
pension funds
Sovereign wealth funds are more likely to target
profitable firms in strategic sectors and in countries
with higher economic growth and weaker legal and
institutional environment.
Calluzzo,
Dong, and
Godsell
(2017)
JIBS
Investigate if sovereign wealth
funds are attracted by the US
campaign finance firms to gain
access to the US
political process
2036 unique sovereign
wealth fund investments
made in 1755 publicly
listed US firms over
2000-2014
Sovereign wealth funds are increasingly attracted
by the US campaign finance firms after the
legislative shock liberalizing corporate campaign
finance activity. These campaign firms increase
60
Authors
(Year)
Journal
Research Question
Sample
Main Arguments and Findings
their political contributions after receiving
sovereign wealth fund investments.
Debarsy,
Gnabo, and
Kerkour
(2017)
JIMF
Identify the driving forces of
cross-border investments
emanating from sovereign
wealth funds and test the
existence of spatial competition
among host countries.
Annual cross-border
sovereign wealth fund
net inflows for 43 host
countries over the period
2004–2009
Countries with higher gross domestic product per
capita and domestic flows attract more sovereign
wealth funds capital. Better political stability and
higher level of financial development of host
country contribute positively to sovereign wealth
fund’s investments net flows, while stock market
volatility has the opposite effect.
Aggarwal
and
Goodell
(2018)
IBR
What are the determinants of
sovereign wealth fund
governance
Data on 49 large
sovereign wealth funds
from 33 countries
National culture matters greatly in determining
sovereign wealth fund governance. Sovereign
wealth fund governance is negatively associated
with the national cultural dimension of power
distance and individualism; and positively
associated with the national cultural dimensions of
long-term orientation and uncertainty avoidance.
Vasudeva,
Nachum,
and Say
(2018)
AMJ
Signaling effect of sovereign
wealth fund investments on the
level of equity ownership in
foreign acquisition targets
Norway’s Government
Pension Fund Global
foreign investments in
47 countries by firms
from Norway (559
firms) and Sweden
(1,256 firms) over 1998–
2011
Activist sovereign wealth fund can serve as an
intermediary, signaling about the quality of host
countries’ institutional environment to
internationalizing firms.
Goergen,
O'Sullivan,
Wood, and
Baric
(2018)
HRMJ
What is the impact of equity
ownership in UK listed firms by
the Norwegian Government
Pension Fund‐Global on labor
demand in these firms
508 firms with Norway’s
Government Pension
Fund Global ownership
for at least one year over
2006–2013
Firms in which Norway’s Government Pension
Fund Global has invested are significantly less
likely to reduce their demand for labor, more
specifically in the immediate aftermath of the 2008
financial crisis. When a drop in the demand for
labor occurs, it is less extreme compared to similar
organizations without Norway’s Government
Pension Fund Global shareholding.
Liu,
Mauck, and
Price
(2019)
JREFE
Examining sovereign wealth
fund investment in real
estate
856 real estate purchases
by sovereign wealth
funds and public pension
funds over 1974-2016
Sovereign wealth funds are significantly more
likely than public pension funds to invest across
international borders. The percentage of sovereign
wealth funds’ cross-border real estate investment is
substantially higher than the percentage of
sovereign wealth funds cross-border investment in
public and private equity.
Park, Xu,
In, and Ji
(2019)
JFM
Examining the long-term impact
of sovereign wealth fund
investments on firm value
709 sovereign wealth
fund transactions over
1989-2015
Sovereign wealth fund investments have a negative
effect on the value of target firms. This effect
depends on the level of investor protection in host
countries. Domestic sovereign wealth funds impart
a stabilizing effect on the stock price of target
firms in countries with low investor protection, but
the effect is weaker for foreign sovereign wealth
funds.
Bahoo,
Alon, and
Paltrinieri
(2020)
IRFA
What are the key research
streams in the sovereign wealth
funds literature?
Meta-literature review,
covering 184 articles
over 2005-2019
Articles about investment strategies of sovereign
wealth funds constitute the bulk of the research.
The vast majority of studies maintain that their
investments are associated with political
connections.
Journals: Academy of Management Journal (AMJ), Academy of Management Perspectives (AMP), Corporate Governance: An International
Review (CGIR), Environment and Planning A (EAPA), Economic Geography (EG), Financial Review (FR), Human Resource Management Journal
(HRMJ), International Business Review (IBR), Journal of Corporate Finance (JCF), Journal of Economic Perspectives (JEP), Journal of Financial
Economics (JFE), Journal of Financial Intermediation (JFI), Journal of Financial Markets (JFM), Journal of International Business Studies (JIBS),
Journal of International Financial Markets, Institutions & Money (JIFMIM), Journal of International Money and Finance (JIMF), Journal of Real
Estate Finance and Economics (JREFE), Organization Science (OS), Review of Financial Studies (RFS), Review of International Political Economy
(RIPE).
61
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