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Project financing: Deal or no deal
Author(s) -
An Yunbi,
Cheung Keith
Publication year - 2010
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2009.02.002
Subject(s) - finance , structuring , project finance , incentive , business , investment (military) , internal financing , perspective (graphical) , external financing , innovative financing , set (abstract data type) , economics , microeconomics , information asymmetry , debt , politics , political science , computer science , law , programming language , artificial intelligence
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.