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.

Citation

De Marco, A., Mangano, G. and Narbaev, T. (2017), "The influence of risk on the equity share of build-operate-transfer projects", Built Environment Project and Asset Management, Vol. 7 No. 1, pp. 45-58. https://doi.org/10.1108/BEPAM-02-2016-0003