We study how sovereign wealth fund (SWF) investments affect the credit risk of target companies as measured by the change in their credit default swap (CDS) spreads around the investment announcement. We find that the CDS spread of target companies decreases, on average, following an SWF investment. The reduction in the CDS spread is higher when the SWF is established by a politically stable non-democratic country that has a neutral political relationship with the host country of the target company. Our results suggest that creditors expect SWFs to protect target companies from bankruptcy when it is in the interest of their home country to build political goodwill in the host country of the company.

In this work, we study the reallocation of shares to retail and institutional investors, measured as the difference between the allocation declared before the initial public offering (IPO) and the effective allotment decided by the underwriter after the bookbuilding process. The reallocation is disaggregated into three components, two of which are under the direct control of the underwriter: the initial allocation, and the demand satisfaction ratio. The empirical analysis is based on a sample of 193 hybrid IPOs issued in Italy between 1997 and 2012. Controlling for firm and IPO characteristics, we find that the IPO shares are typically shifted toward institutional investors when positive information is collected during the bookbuilding process. The IPO pricing and share reallocation are found to be interdependent, and reallocation is used in combination with partial adjustment to reward institutional investors.