Abstract:
Within institutional economics perspective of project finance, this paper empirically
examines the potential influence of factors on debt capacity in project companies when
financed through bank-dominated financial systems with comparatively weak legal,
regulatory and political institutions. The principle focus of the research is on governance
impact on debt capacity of the project company rather than traditional determinants of
capital structure choice.
• Following previous linear functions on loan syndication, an econometric model on
debt capacity is constructed using institutional environment and transaction-specific
variables. The model is run for a sample of infrastructure project companies in Asia
within the domain of structuring of credit transactions.
• The econometric results confirm that stable institutional environments and appropriate
mechanisms to manage risk of agency problems increase debt capacity in project companies
financed through bank-type intermediaries in emerging economies.
• These findings reveal that improvements in institutional capacity and establishment
of alternative arrangements to mange credit risks could work to promote long-term
investment schemes such as project finance for infrastructure development.
