How do sovereign wealth funds pay their portfolio companies' executives? Evidence from Kuwait

Sovereign wealth funds (SWFs) are major players in the global markets. We contribute to the corporate governance literature by examining the possible value SWFs bring to their domestic holdings. We specifically examine the impact of SWFs' ownership on firm executive compensation. Using data on Kuwaiti SWFs, we find that the pay-performance relationship diminishes as the cash flow rights of the SWF are greater. Moreover, having the SWF as the ultimate owner in the ownership chain of the firm does not alleviate the adverse effects of the divergence in cash flow and control rights. This evidence supports the notion that SWFs impose agency costs on their targets.