Sovereign Wealth Funds and Equity Pricing: Evidence from Implied Cost of Equity of Publicly Traded Target

We investigate the impact of sovereign wealth fund (SWF) investment on the ex ante (implied) cost of equity capital of targeted firms. Using an international sample of 310 targets involved in 403 SWF deals and their matched firms, we find that targeted firms exhibit, on average, a higher cost of equity financing than their peers after the announcement date. Firms involved in domestic deals and deals concluded during the Global Financial Crisis (GFC) exhibit a lower implied cost of equity financing, while those involved in cross-border deals are associated with a higher implied cost of equity capital.