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

Hainz, Christa and Kleimeier, Stefanie (December 2006): Project Finance as a Risk-Management Tool in International Syndicated Lending. SFB/TR 15 Discussion Paper No. 183

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”.

• Item Type: Paper
• Keywords: project finance, syndicated loans, political risk, double moral hazard
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B5 - Weltwirtschaftliche Integration und die neue Firmenorganisation; Economics; Economics > Chairs > Seminar for Comparative Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D82, F34, G21, G32
• Language: English