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

Governance and the Efficiency of Economic Systems (GESY), SFB/TR 15, Discussion Paper No 183

48 Pages Posted: 3 Aug 2004  

Christa Hainz

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Stefanie Kleimeier

Maastricht University - Department of Finance

Date Written: December 2006

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

JEL Classification: D82, F34, G21, G32

Suggested Citation

Hainz, Christa and Kleimeier, Stefanie, Project Finance as a Risk-Management Tool in International Syndicated Lending (December 2006). Governance and the Efficiency of Economic Systems (GESY), SFB/TR 15, Discussion Paper No 183. Available at SSRN: https://ssrn.com/abstract=567112 or http://dx.doi.org/10.2139/ssrn.567112

Christa Hainz

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 81069
Germany

Stefanie Kleimeier (Contact Author)

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

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