IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v48y2013i02p549-577_00.html
   My bibliography  Save this article

Risk Management with Leverage: Evidence from Project Finance

Author

Listed:
  • Byoun, Soku
  • Kim, Jaemin
  • Yoo, Sean Sehyun

Abstract

We examine capital structures of 2,572 project-financed investments in 124 countries for the period 1997–2006. In contrast to the general prediction of the trade-off theory, we find that project companies use more leverage when project risk is high, but they use less leverage in the presence of risk-reducing features including offtake agreements. Project companies use less leverage and instead rely more on offtake agreements when the control benefits of cash flow from the project are high, suggesting that leverage and contract structures in the project company are important hedging mechanisms.

Suggested Citation

  • Byoun, Soku & Kim, Jaemin & Yoo, Sean Sehyun, 2013. "Risk Management with Leverage: Evidence from Project Finance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(2), pages 549-577, April.
    • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:02:p:549-577_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109013000082/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jimmy, Charles & Falianty, Telisa Aulia, 2021. "Managing leverage of infrastructure projects: Aggregate and sectoral risk effect," Journal of Asian Economics, Elsevier, vol. 73(C).
    2. McHugh, Christopher A., 2023. "Competitive conditions in development finance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    3. Dorobantu, Sinziana & Müllner, Jakob, 2019. "Debt-side governance and the geography of project finance syndicates," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 161-179.
    4. Distadio, Luiz Fernando & Ferguson, Andrew, 2022. "Mine offtake contracting, strategic alliances and the equity market," Journal of Commodity Markets, Elsevier, vol. 27(C).
    5. Hae Won (Henny) Jung & Ajay Subramanian, 2014. "Capital Structure under Heterogeneous Beliefs," Review of Finance, European Finance Association, vol. 18(5), pages 1617-1681.
    6. Akira Nishimura, 2016. "Foreign Exchange Risk and Profit Improvement in the Comprehensive Profit Opportunity and Lost Opportunity Control Model," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(4), pages 1-1, March.
    7. Anton Miglo, 2020. "Zero-Debt Policy under Asymmetric Information, Flexibility and Free Cash Flow Considerations," JRFM, MDPI, vol. 13(12), pages 1-25, November.
    8. Mansaray, Alhassan & Coleman, Simeon & Ataullah, Ali & Sirichand, Kavita, 2021. "Residual government ownership in public-private partnership projects," Journal of Government and Economics, Elsevier, vol. 4(C).
    9. Lotfaliei, Babak, 2018. "Zero leverage and the value in waiting to have debt," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 335-349.
    10. Jakob Müllner & Sinziana Dorobantu, 2023. "Overcoming political risk in developing economies through non-local debt," Journal of International Business Policy, Palgrave Macmillan, vol. 6(2), pages 159-181, June.
    11. Mario Fischer, 2015. "Challenging the payment effect in bank-financed takeovers," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(4), pages 347-376, October.
    12. Ágnes Csiszárik-Kocsir, 2016. "Transformation of the international and European project finance market as a result of the crisis," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(1), pages 51-69.
    13. Byoun, Soku & Xu, Zhaoxia, 2014. "Contracts, governance, and country risk in project finance: Theory and evidence," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 124-144.
    14. Müllner, Jakob, 2016. "From uncertainty to risk—A risk management framework for market entry," Journal of World Business, Elsevier, vol. 51(5), pages 800-814.
    15. Sara Faedfar & Mustafa Özyeşil & Mustafa Çıkrıkçı & Esin Benhür Aktürk, 2022. "Effective Risk Management and Sustainable Corporate Performance Integrating Innovation and Intellectual Capital: An Application on Istanbul Exchange Market," Sustainability, MDPI, vol. 14(18), pages 1-13, September.
    16. Chung, Demi & Hensher, David A., 2018. "Public private partnerships in the provision of tolled roads: Shared value creation, trust and control," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 341-359.
    17. Juan David González-Ruiz & Juan Camilo Mejia-Escobar & Giovanni Franco-Sepúlveda, 2021. "Towards an Understanding of Project Finance in the Mining Sector in the Sustainability Context: A Scientometric Analysis," Sustainability, MDPI, vol. 13(18), pages 1-27, September.
    18. Jakob Müllner, 2017. "International project finance: review and implications for international finance and international business," Management Review Quarterly, Springer, vol. 67(2), pages 97-133, April.
    19. Choi, Bongseok & Kim, Seon Tae, 2018. "Price volatility and risk management of oil and gas companies: Evidence from oil and gas project finance deals," Energy Economics, Elsevier, vol. 76(C), pages 594-605.
    20. A. Garcia-Bernabeu & F. Mayor-Vitoria & F. Mas-Verdu, 2015. "Project Finance Recent Applications and Future Trends: The State of the Art," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 14(2), pages 159-178, December.
    21. Monia Castellini & Caterina Ferrario & Vincenzo Riso, 2021. "From New Public Management to Public Risk Management: An overview of Italian municipalities," Working Papers 20210310, University of Ferrara, Department of Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:48:y:2013:i:02:p:549-577_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.