The influence of risk on the equity share of build-operate-transfer projects

Abstract

Purpose The purpose of this paper is to contribute to the understanding of the crucial influence of risks on the capital structure of build-operate-transfer (BOT) projects. Design/methodology/approach The equity portion of capital injected in a BOT investment is selected as the response variable and its relation with select identified risk factors is examined using a regression analysis on a data set of BOT projects. Findings Results have pointed out that the level of equity is significantly influenced by several sources of risk. Country, revenue, project and special purpose vehicle-related risks have been shown to have an impact on the size of the equity share of a BOT investment. Research limitations/implications The results could support both investors and lenders to better define the financial leverage of BOT projects. In particular, the study could help to have a better understanding of the main factors that influence the equity apportion of capital in BOT investments. Originality/value This paper contributes to fulfilling the lack of works addressing the relationship between risk factors and capital structure in BOT projects. In this way, this research leads to a better understanding of the risk factors that influence the capital structure of BOT project and they have therefore been proposed as a base for the establishment of improved methods to design refined capital structures in BOT projects.

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