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Managing leverage of infrastructure projects: Aggregate and sectoral risk effect

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  • Jimmy, Charles
  • Falianty, Telisa Aulia

Abstract

Funding for infrastructure projects recently shows that debt has a portion more than equity, triggering public debates. Therefore, leverage as an instrument to measure the ability and willingness of project sponsors to fund becomes the utmost importance to discuss. Relating to leverage, risk and government participation are two main factors that can explain the choice of funding decisions by the project sponsors. For this reason, this study would analyze the effect of risk and government participation on leverage through the two main sectors of infrastructure projects, namely the transportation sector and the energy sector, and derivating risk to political risk and financial risk. The objects of research were 976 infrastructure projects listed in the Asian Development Bank during 2007−2016. We use censored regression to examine the model by infrastructure sectors, both as individual and through interaction effects. The analysis showed that overall, leverage of infrastructure projects was rather influenced by financial risk than by political risk. However, the leverage of infrastructure projects in the transportation sector was more vulnerable to risk than that in other sectors.

Suggested Citation

  • Jimmy, Charles & Falianty, Telisa Aulia, 2021. "Managing leverage of infrastructure projects: Aggregate and sectoral risk effect," Journal of Asian Economics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:asieco:v:73:y:2021:i:c:s1049007821000130
    DOI: 10.1016/j.asieco.2021.101284
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    References listed on IDEAS

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    1. Morag Torrance, 2009. "The Rise of a Global Infrastructure Market through Relational Investing," Economic Geography, Taylor & Francis Journals, vol. 85(1), pages 75-97, January.
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    4. Bor-Yi Huang & Cho-Min Lin & Chien-Ming Huang, 2011. "The Influences of Ownership Structure: evidence from China," Journal of Developing Areas, Tennessee State University, College of Business, vol. 45(1), pages 209-227, July-Dece.
    5. Atif Ansar & Bent Flyvbjerg & Alexander Budzier & Daniel Lunn, 2016. "Does infrastructure investment lead to economic growth or economic fragility? Evidence from China," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(3), pages 360-390.
    6. 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.
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    Cited by:

    1. Bedoya-Cadavid, Jorge Armando & Lanzas-Duque, Angela María & Salazar, Harold, 2025. "Common risk factors for Latin American electric utilities," Utilities Policy, Elsevier, vol. 93(C).

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