A theory of National Development Bank: long-term investment and the agency problem

Shenzhe Jiang, Junjie Xia (), Jiajun Xu and Jianye Yan
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Shenzhe Jiang: Peking University
Junjie Xia: Central University of Finance and Economics
Jiajun Xu: Peking University
Jianye Yan: China Agricultural University

Economic Theory, 2023, vol. 76, issue 3, No 9, 995-1024

Abstract: Abstract This paper applies the contract theory to study the role of National Development Bank (NDB) in financing infrastructure investment. We first show that to mitigate overrun issues resulting from the agency problem during the infrastructure construction, the government uses mixed financing strategy combining fiscal funding with NDB loans. We then endogenize the NDB investment strategy to study the determinants of NDB profit and use cross-country panel data to empirically test our model predictions.

Keywords: Agency cost; Dynamic contract; National Development Banks; Infrastructure (search for similar items in EconPapers)
JEL-codes: D80 G21 G32 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00199-023-01484-2

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