Title: Project finance and recourse loans: determining debt choices in political, economic and financial risk positions under global perspective

Authors: Muhammad Arif; Mian Sajid Nazir; Muhammad Ali Jibran Qamar; Ammar Abid

Addresses: Department of Management Science, COMSATS University Islamabad, Islamabad, Pakistan ' Department of Finance (HEC Montréal), Université de Montréal, Montreal, Quebec, Canada; Institute of Administrative Sciences, University of the Punjab, Lahore, Pakistan ' Department of Management Science, COMSATS University Islamabad, Islamabad, Pakistan ' Department of Management Science, COMSATS University Islamabad, Islamabad, Pakistan

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.

Keywords: project finance; recourse loans; political risk; financial risk; economic risk; global perspective.

DOI: 10.1504/EJIM.2022.124892

European Journal of International Management, 2022 Vol.18 No.2/3, pp.379 - 402

Received: 09 Sep 2019
Accepted: 15 Sep 2020
Published online: 15 Aug 2022 *

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