The Impact of Sovereign Wealth Funds Investment on Firm ESG Reputation Risk

Based on the two competing theoretical arguments of contracting versus predatory, we examine the effect of Sovereign Wealth Funds (SWF, henceforth) on corporate ESG reputation risk. We find a strong positive association of SWF ownership on firm ESG reputation risk in line with the predatory view of SWF as institutional investors. The results highlight that state expropriation risk and political agenda may be detrimental to a firm reputation. We further examine whether the moderating role of transparency and governance environment underscores the merit of these enabling institutions to lower the reputational damages facing firms due to SWF ownership. We also maintain firm reputation risk could be an important component of the “SWF discounts” which are generally recognised in the investment literature