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Annamalai, T R and Jain, N (2013) Project finance and investments in risky environments: evidence from the infrastructure sector. Journal of Financial Management of Property and Construction, 18(03), 251-67.

  • Type: Journal Article
  • Keywords: Developing countries; Foreign investors; Project cost; Project finance; Risky environments; Syndication
  • ISBN/ISSN: 1366-4387
  • URL: https://doi.org/10.1108/JFMPC-08-2012-0033
  • Abstract:
    Purpose Privately financed infrastructure projects commonly use a project finance structure. Project finance is expected to facilitate investment flow in risky environments. The objective of this paper examines the link between the use of project finance and investments in risky environments. Design/methodology/approach Project Finance International database has been used as the data source for this study. 3,372 transactions from power, oil and gas, transportation, telecommunication, and water supply sectors have been considered means analysis and multi-variate regression models have been used in the analysis. Findings The average project cost in a developing country was higher than that of developed countries. Gearing ratio, however, was higher in the developed countries. This indicated that the projects had a lower level of inherent risk, which enabled them to get funded at high gearing levels. The proportion of foreign banks in the syndicate was higher in the developing countries, which indicated that the use of project finance has helped to attract investment from foreign investors. Practical implications Practitioners and project development companies in the developing countries should actively consider using project financing technique for achieving financial closure of large infrastructure projects. Simultaneously, policy makers should create appropriate supporting institutional framework (regulatory, legal, contractual arrangements) that supports the use of project finance. Originality/value As far as the authors know, this study uses a dataset that has not been used in the previous studies. The results of this paper strengthen the understanding of project financing.