Debt-side governance and the geography of project finance syndicates

We build on Williamson's (1988) emphasis on debt as a mechanism of governance to argue and show that the geographic composition of banking syndicates financing infrastructure investments is driven in part by the level of host-country (i.e. local) political risk and, in part, by the level of systemic risk in global financial markets. Geographically dispersed syndicates pool more external leverage over host-country stakeholders, allowing them to mitigate host-country political risk, but are also more difficult to reorganize internally if circumstances demand it. We therefore propose that the geographic composition of a syndicate reflects a trade-off between the syndicate's external political leverage and its ability to reorganize internally. Using data on 5928 large-scale infrastructure projects in 160 countries, we show that syndicates are more geographically dispersed when an investment is exposed to high levels of political risk in the host country. We also identify systemic risk in lending markets as an impediment to creating such debt-side governance, and show that syndicates are more geographically concentrated when they finance projects in years with increased systemic risk.