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Project finance loan spreads and disaggregated political risk

Author

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  • Claudia Girardone
  • Stuart Snaith

Abstract

This article provides novel evidence on project finance loan pricing using economic and disaggregated political risk determinants. As expected, our findings suggest that the presence of loan guarantees and lower levels of aggregate political risk results in cheaper project finance loans. The evidence in support of disaggregated political risk as a pricing determinant is negligible for developed countries, but significant for developing countries. For the latter we find that loan spreads are negatively related to the effectiveness, quality and strength of a country's legal and institutional systems whilst lower levels of government stability and democratic accountability are associated with lower loan spreads. Our results are consistent with a risk allocation approach to project finance deals.

Suggested Citation

  • Claudia Girardone & Stuart Snaith, 2011. "Project finance loan spreads and disaggregated political risk," Applied Financial Economics, Taylor & Francis Journals, vol. 21(23), pages 1725-1734.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:23:p:1725-1734
    DOI: 10.1080/09603107.2011.577006
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    Cited by:

    1. Carlos CONTRERAS & Julio ANGULO, 2016. "How Do Credit Spreads Affect Risk Allocation In Public Ï¿½ Private Partnerships?," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 9(9), pages 63-79, June.
    2. Gabriel J. Power & Issouf Soumaré & Djerry C. Tandja M., 2022. "Certification by financial and legal advisors in private debt markets," The Financial Review, Eastern Finance Association, vol. 57(4), pages 893-923, November.
    3. Juan David González-Ruiz & Sergio Botero-Botero & Eduardo Duque-Grisales, 2018. "Financial Eco-Innovation as a Mechanism for Fostering the Development of Sustainable Infrastructure Systems," Sustainability, MDPI, vol. 10(12), pages 1-19, November.
    4. Gabriel J. Power & Djerry C. Mbianda Tandja, 2022. "Should lenders also advise? Evidence from project loans," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 961-985, December.

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