Information asymmetry, hedging and wealth effects of project finance loan approvals

64 Pages Posted: 23 Aug 2019 Last revised: 11 May 2021

See all articles by Andrew Ferguson

Andrew Ferguson

Department of Accounting, UTS

Peter Lam

University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN)

Date Written: May 11, 2020

Abstract

Using a unique hand-collected sample, we study market reactions to mining developers announcing project finance loans. We document a significant 3-day abnormal return of 2.2% and a 2.51% reduction in abnormal bid-ask spread, consistent with information transfer from private lenders to equityholders and reduction in asymmetric information. Further analysis reveals a negative association between announcement return and hedging requirements specified in loan contracts, suggesting a wealth transfer from equityholders to debtholders. We also find that loans for projects located in high political risk jurisdictions are met with higher announcement returns.

Keywords: Project finance, hedging, event study, political uncertainty, loan pricing

JEL Classification: G21, G12

Suggested Citation

Ferguson, Andrew and Lam, Peter, Information asymmetry, hedging and wealth effects of project finance loan approvals (May 11, 2020). Available at SSRN: https://ssrn.com/abstract=2395694

Andrew Ferguson (Contact Author)

Department of Accounting, UTS ( email )

PO Box 123 Broadway
Sydney, NSW 2007
Australia
61 2 9514 3565 (Phone)

Peter Lam

University of Technology, Sydney - Discipline of Accounting ( email )

P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3926 (Phone)
02 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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