TY - JOUR
T1 - A signaling theory of institutional activism
T2 - How Norway's sovereign wealth fund investments affect firms' Foreign acquisitions
AU - Singh, Gurneeta V
AU - Nachum, Lilac
AU - Say, Gui Deng
N1 - Funding Information:
A Grants-in-Aid funding from the University of Minnesota provided financial support for this project to the first author.
Publisher Copyright:
© Academy of Management Journal
PY - 2018/8
Y1 - 2018/8
N2 - Combining perspectives from institutional activism and signaling theory literatures, we suggest that an activist sovereign wealth fund (SWF) can serve as an intermediary signaler, providing cues about host countries' institutional environment to internationalizing firms. By publicizing its investments and engaging in institutional activism, a SWF can signal the institutional quality of host countries to internationalizing firms, thus allowing them to overcome the well-known “lemons problem” in international decision-making. We examine the impact of a SWF's signals on firms' ownership choices in their foreign acquisitions. Our empirical analysis of Norway's socially responsible SWF and firms from Norway and Sweden during 1998-2011 shows that firms are more likely to take larger commitments via full equity ownership in acquisitions in host countries where Norway's SWF holds larger investments. The signaling effect of the SWF weakens for conational firms, suggesting that proximity to the signaler may generate alternative information channels that diminish the signaling value of foreign investments. Similarly, institutional harmonization enabled by intergovernmental organizations connecting the home and host countries weakens the signaling value of SWF investments. Our findings point to intermediary signaling by activist institutional investors and the salience of their signals for firms' international decision-making.
AB - Combining perspectives from institutional activism and signaling theory literatures, we suggest that an activist sovereign wealth fund (SWF) can serve as an intermediary signaler, providing cues about host countries' institutional environment to internationalizing firms. By publicizing its investments and engaging in institutional activism, a SWF can signal the institutional quality of host countries to internationalizing firms, thus allowing them to overcome the well-known “lemons problem” in international decision-making. We examine the impact of a SWF's signals on firms' ownership choices in their foreign acquisitions. Our empirical analysis of Norway's socially responsible SWF and firms from Norway and Sweden during 1998-2011 shows that firms are more likely to take larger commitments via full equity ownership in acquisitions in host countries where Norway's SWF holds larger investments. The signaling effect of the SWF weakens for conational firms, suggesting that proximity to the signaler may generate alternative information channels that diminish the signaling value of foreign investments. Similarly, institutional harmonization enabled by intergovernmental organizations connecting the home and host countries weakens the signaling value of SWF investments. Our findings point to intermediary signaling by activist institutional investors and the salience of their signals for firms' international decision-making.
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U2 - 10.5465/amj.2015.1141
DO - 10.5465/amj.2015.1141
M3 - Article
AN - SCOPUS:85052670766
SN - 0001-4273
VL - 61
SP - 1583
EP - 1611
JO - Academy of Management Journal
JF - Academy of Management Journal
IS - 4
ER -