TY - JOUR
T1 - Debt-side governance and the geography of project finance syndicates
AU - Dorobantu, Sinziana
AU - Müllner, Jakob
PY - 2019
Y1 - 2019
N2 - 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 5,928 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.
AB - 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 5,928 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.
UR - https://www.sciencedirect.com/science/article/pii/S0929119917301244
U2 - 10.1016/j.jcorpfin.2017.12.022
DO - 10.1016/j.jcorpfin.2017.12.022
M3 - Journal article
SN - 0929-1199
VL - 57
SP - 161
EP - 179
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
ER -