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A theory of National Development Bank: long-term investment and the agency problem

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Listed:
  • Shenzhe Jiang

    (Peking University)

  • Junjie Xia

    (Central University of Finance and Economics
    Peking University)

  • Jiajun Xu

    (Peking University)

  • Jianye Yan

    (China Agricultural University)

Abstract

This paper applies the contract theory to study the role of National Development Bank (NDB) in financing infrastructure investment. We first show that to mitigate overrun issues resulting from the agency problem during the infrastructure construction, the government uses mixed financing strategy combining fiscal funding with NDB loans. We then endogenize the NDB investment strategy to study the determinants of NDB profit and use cross-country panel data to empirically test our model predictions.

Suggested Citation

  • Shenzhe Jiang & Junjie Xia & Jiajun Xu & Jianye Yan, 2023. "A theory of National Development Bank: long-term investment and the agency problem," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(3), pages 995-1024, October.
    • Handle: RePEc:spr:joecth:v:76:y:2023:i:3:d:10.1007_s00199-023-01484-2
    DOI: 10.1007/s00199-023-01484-2
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    More about this item

    Keywords

    Agency cost; Dynamic contract; National Development Banks; Infrastructure;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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