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Article

Krzysztof Jackowicz, Paweł Mielcarz and Paweł Wnuczak

The literature on project finance appraisal contains several ambiguities mainly concerning the correct method of equity cash flow (ECF) determination. This vagueness can…

Abstract

Purpose

The literature on project finance appraisal contains several ambiguities mainly concerning the correct method of equity cash flow (ECF) determination. This vagueness can lead to serious misevaluation of these projects. The purpose of this paper is to present and justify a correct method of ECF determination for project finance evaluation.

Design/methodology/approach

Based on the analysis of the specificity of project finance ventures and the study of existing literature, the authors propose a coherent model of ECF estimation that avoids misevaluating project finance ventures.

Findings

This paper demonstrates that the potential dividends methodology of ECF estimation, used commonly in the corporate finance world, leads to the erroneous valuation of project finance investments. Moreover, simulations demonstrate that the scale of this misevaluation is an increasing function of the debt covenant duration, the required rate of return, and the investment outlay dispersion over time. The proposed model of proper project finance valuation, despite inconsistency with assumptions of the fair value concept, is best suited for project finance venture appraisal, taking into consideration the inherently specific timing of the ECF.

Originality/value

This paper rectifies, clarifies, and extends the range of existing solutions for the project finance valuation and the application of the concepts of actual dividends and potential dividends in different valuation contexts. Furthermore, it proposes a simple and coherent method to value project finance ventures. Additionally, it offers evidence of the scale of NPV misevaluation in project finance, which occurs when the potential dividends approach is utilized.

Details

Managerial Finance, vol. 43 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

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Article

Krzysztof Jackowicz, Łukasz Kozłowski and Adrian Strucinski

The authors investigate the factors affecting the decision of small and medium-sized enterprises (SMEs) to do business with either small local banks or large commercial banks.

Abstract

Purpose

The authors investigate the factors affecting the decision of small and medium-sized enterprises (SMEs) to do business with either small local banks or large commercial banks.

Design/methodology/approach

We combine various data sources on Polish SMEs, including their financial statements, county-level data on SMEs' local environment, information about bank branch locations, as well as a new survey on the specificity of bank–firm relationships. We employ the logit and Tobit models.

Findings

SMEs' bank choices and the length of a bank–firm relationship are more strongly associated with trust-related factors, rather than transactional ones. SME managers motivated by trust-related factors are more likely to choose local lenders and maintain long-term relationships with them. However, as firms grow and mature, SME managers lean toward banks adopting transaction-oriented policies.

Research limitations/implications

We could have drawn a more detailed picture of the bank selection process had we been able to compare the traits of a firm's current and previous banks.

Practical implications

The study shows that the features of a bank's offer, including product prices, have limited potential in shaping long-term relationships between banks and SMEs.

Originality/value

The topic of bank selection by SMEs has not been thoroughly investigated in the case of Central European countries. We address this gap by comparing two types of potential drivers of bank selection: trust-related factors and a set of purely economic (transactional) motives.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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