Project finance and recourse loans: determining debt choices in political, economic and financial risk positions under global perspective
by Muhammad Arif; Mian Sajid Nazir; Muhammad Ali Jibran Qamar; Ammar Abid
European J. of International Management (EJIM), Vol. 18, No. 2/3, 2022

Abstract: In an uncertain environment, each risk (political, economic, financial, micro and macro) possesses unique influence. This study examines the impact of country risk on the debt structure choice. Our study argues that the relative risk of a country directs loan design between project finance loans and recourse loans. We test our argument by considering three major risks as political risk, financial risk, and economic risk, aiming to identify the relative influence towards project finance or full-recourse loan selection. Employing one of the largest data sets to-date (sample of 63,992 asset-based loans from 98 countries) we find that an increase in political or economic risk increases the predictive probability of project finance loans, while an increase in financial risk reduces the project finance loan selection probability.

Online publication date: Mon, 15-Aug-2022

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