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Project financing: Deal or no deal

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  • Yunbi An
  • Keith Cheung

Abstract

Most research on project financing focuses mainly on structuring and financing issues. In this paper we propose a model that incorporates the effects of the management efforts on market outcomes in its framework. Thus, we can examine project financing from the perspective of managerial incentives. The model highlights a set of conditions under which corporations prefer off‐balance‐sheet project financing. The choice is driven by the required amount of investment and the extent of uncertainty. Companies tend to choose project financing when managers' efforts have a significant impact on the magnitude and likelihood of favorable outcomes. Further, the larger the capital amount, the more likely it is that companies will use outside project financing.

Suggested Citation

  • Yunbi An & Keith Cheung, 2010. "Project financing: Deal or no deal," Review of Financial Economics, John Wiley & Sons, vol. 19(2), pages 72-77, April.
    • Handle: RePEc:wly:revfec:v:19:y:2010:i:2:p:72-77
    DOI: 10.1016/j.rfe.2009.02.002
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    References listed on IDEAS

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