How Uncertainty and Mistrust Can Affect Transaction Costs in Project Finance Agreements (PFCs)

Proceedings of The 2nd International Conference on Research in Business, Management and Economics

Year: 2019

DOI:

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How Uncertainty and Mistrust Can Affect Transaction Costs in Project Finance Agreements (PFCs)

Alexandre-Silva, Maurício ,Turolla and Frederico Araújo

ABSTRACT: 

The study explores the formation of transaction costs in infrastructure bank financing operations, based on the analysis of project finance contracts (PFCs), typical instruments in this type of venture. Financing costs are usually determined by analyzing each infrastructure project, its risks, guarantees, cash flow, etc.. Through a structural model and quantitative data analysis, the present research follows an alternative route and tries to verify if the financing conditions in the PFCs correspond to other factors, such as uncertainty and distrust of debtor / financed behavior. Accordingly, the transaction cost literature assumes distrust and uncertainty as explanatory factors in the choices of economic agents. A structural model is proposed to evaluate quantitative data extracted from these contracts, using the Partial Least Squares tool (Smart PLS), which allowed the exhibition expansion to 10,000 of the originally 16 contracts raised for the study. The results suggest that, yes, uncertainty and distrust regarding borrower / borrower behavior has effects on some of the transaction costs of PFCs in both the original and synthetic sample.

Keywords: infrastructure, financing, banking, transaction-costs, FDI.