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Political Risk in Syndicated Lending:Theory and Empirical Evidence Regarding the Use of ProjectFinance

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CHRISTA HAINZ
STEFANIE KLEIMEIER

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Abstract

Why do bank grant project finance loans to borrowers in risky countries? Our double moral hazard model predicts that project finance is optimal if the degree of moral hazard of the firm's manager is high and either the project faces high levels of political risk or the bank has influence over the political risk exposure of the project. Using a global and a transition economy sample of project finance loans from 1980 to 2003, we find empirical support of our predictions regarding firm moral hazard and political risk. Regarding the bank's role only the influence of the IFC is significant.

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Paper provided by Tor Vergata University, CEIS in its series Departmental Working Papers with number 197.

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Date of creation: Jan 2004
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Handle: RePEc:rtv:ceiswp:197

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Shah, Salman & Thakor, Anjan V., 1987. "Optimal capital structure and project financing," Journal of Economic Theory, Elsevier, vol. 42(2), pages 209-243, August. [Downloadable!] (restricted)
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  5. Georg Noeldeke & Klaus Schmidt, 1998. "Sequential Investments and Options to Own," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Manove, Michael & Padilla, Atilano Jorge & Pagano, Marco, 2000. "Collateral Vs. Project Screening: A Model Of Lazy Banks," CEPR Discussion Papers 2439, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank. [Downloadable!]
  8. Barry Eichengreen & Ashoka Mody, 1999. "Lending Booms, Reserves, and the Sustainability of Short-Term Debt: Inferences from the Pricing of Syndicated Bank Loans," NBER Working Papers 7113, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Stefanie Kleimeier & William L. Megginson, 2000. "Are Project Finance Loans Different From Other Syndicated Credits?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(1), pages 75-87. [Downloadable!] (restricted)
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  12. Chemmanur, Thomas J. & John, Kose, 1996. "Optimal Incorporation, Structure of Debt Contracts, and Limited-Recourse Project Financing," Journal of Financial Intermediation, Elsevier, vol. 5(4), pages 372-408, October. [Downloadable!] (restricted)
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  13. Yener Altunbas & Blaise Gadanecz, 2003. "Developing country economic structure and the pricing of syndicated credits," BIS Working Papers 132, Bank for International Settlements. [Downloadable!]
  14. Richard A. Brealey & Ian A. Cooper & Michel A. Habib, 1996. "Using Project Finance To Fund Infrastructure Investments," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 25-39. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert Dur & Arjan Non & Hein Roelfsema, 2008. "Reciprocity and Incentive Pay in the Workplace," Tinbergen Institute Discussion Papers 08-080/1, Tinbergen Institute. [Downloadable!]
    Other versions:
  2. Marco Sorge & Blaise Gadanecz, 2008. "The term structure of credit spreads in project finance

    Supplementary material for this article can be found at ," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 68-81. [Downloadable!]

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