Project Finance as a Risk-Management Tool in International Syndicated Lending

Christa Hainz and Stefanie Kleimeier

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We develop a double moral hazard model that predicts that the use of project finance increases with both the political risk of the country in which the project is located and the influence of the lender over this political risk exposure. In contrast, the use of project finance should decrease as the economic health and corporate governance provisions of the borrower’s home country improve. When we test these predictions with a global sample of syndicated loans to borrowers in 139 countries, we find overall support for our model and provide evidence that multilateral development banks act as “political umbrellas†.

Keywords: project finance; syndicated loans; political risk; double moral hazard (search for similar items in EconPapers)
JEL-codes: D82 F34 G21 G32 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-ppm
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:183

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