Institutional Quality, Investment Efficiency and the Choice of Public-Private Partnerships

42 Pages Posted: 23 Jan 2017 Last revised: 22 Jun 2017

See all articles by Hong Nhung Dao

Hong Nhung Dao

RMIT University, Faculty of Business, School of Economics, Finance and Marketing

Jing Shi

Macquarie University

Vijaya B. Marisetty

RMIT University; Financial Research Network (FIRN)

Monica Tan

RMIT University; Financial Research Network (FIRN)

Date Written: May 10, 2017

Abstract

By using a sample of 625 Public-Private Partnership (PPP) private sector firms that covers the years from 1980 to 2015 and straddles nine countries at varying degrees of economic development and PPP markets, we find that the motivation of the firms that undertake PPP investments varies. While private sector firms in economies with low institutional quality opt for PPPs to alleviate capital constraints attributed to underinvestment, those in economies with high institutional quality opt for PPPs to solve the problem of overinvestment caused by abundant cash flow. In the long run, the benefits of lower capital constraints through PPP investments are more pronounced in the economies with high institutional quality. Hence, our paper contributes to the extant debate on the role of institutional quality by stating that the “law-finance-growth” hypothesis is more plausible than the “political tie” hypothesis for understanding why private sector firms undertake PPP investments.

Keywords: Public-Private Partnerships, institutional quality, investment-cash flow sensitivity

JEL Classification: G31, G32, G38

Suggested Citation

Dao, Hong Nhung and Shi, Jing and Marisetty, Vijaya B. and Tan, Monica, Institutional Quality, Investment Efficiency and the Choice of Public-Private Partnerships (May 10, 2017). 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017. Available at SSRN: https://ssrn.com/abstract=2903396 or http://dx.doi.org/10.2139/ssrn.2903396

Hong Nhung Dao (Contact Author)

RMIT University, Faculty of Business, School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria
Australia

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Vijaya B. Marisetty

RMIT University ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

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

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

Monica Tan

RMIT University ( email )

35 Herlihys Rd
Templestowe Lower, 3107
Australia
403388233 (Phone)

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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