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Public-Private Partnerships, Capital Infrastructure Project Investments and Infrastructure Finance
Type: Book
ISBN: 978-1-83909-654-9

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Book part
Publication date: 21 June 2005

Nicholas Hann and Tim Mack

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Handbook of Transport Strategy, Policy and Institutions
Type: Book
ISBN: 978-0-0804-4115-3

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Article
Publication date: 1 March 2007

Piet de Vries

There is a growing support for the view that the private sector is at least as efficient as the public sector in managing investment risks of large projects. Governments…

Abstract

There is a growing support for the view that the private sector is at least as efficient as the public sector in managing investment risks of large projects. Governments forget that it is the taxpayer who bears all the risks in a public finance scenario of investments. So, it seems unfounded that governments should neglect the cost of investment risk in obtaining finance as the taxpayer might be seen as a shareholder in (public) investments, which by definition are risky. It is this taxpayer-is-shareholder perspective that will be criticized in this paper. This taxpayer approach neglects the variety of funding and financing positions that might be taken by the various actors in investment projects. The paper concludes that some prudence is recommended in supporting private finance initiatives

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Journal of Public Budgeting, Accounting & Financial Management, vol. 19 no. 3
Type: Research Article
ISSN: 1096-3367

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Book part
Publication date: 8 March 2011

Galina Hale and Cheryl Long

In this chapter we study internal and external, formal and informal, financing sources of Chinese firms during the period 1997–2006, by analyzing balance sheet data from…

Abstract

In this chapter we study internal and external, formal and informal, financing sources of Chinese firms during the period 1997–2006, by analyzing balance sheet data from the Chinese Industrial Surveys of Medium-sized and Large Firms for 2000–2006 and survey data from the Large-Scale Survey of Private Enterprises in China conducted in 1997, 2000, 2002, 2004, and 2006.

The following stylized facts emerge from our analysis: (1) State-owned firms continue to enjoy more generous external finances than other types of Chinese firms. (2) Chinese private firms have resorted to various ways of overcoming financial constraints, including reliance on the increasingly more mature informal financial markets, cost savings through lower inventory and other working capital requirements, and greater reliance on retained earnings. (3) Substantial variations exist in financial access among private firms, with small private firms facing more financial constraints whereas more established firms having financial access more equal to their SOE counterparts. (4) Although not as accessible as for SOEs, the Chinese formal financial sector does provide Chinese private firms with substantial financial resources, especially for their short-term needs during daily operations. (5) The most pressing financial constraint facing Chinese private firms is their limited ability to secure long-term funds to invest for growth, and resolving this issue should be one of the top goals of financial reforms in China.

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The Evolving Role of Asia in Global Finance
Type: Book
ISBN: 978-0-85724-745-2

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Article
Publication date: 20 August 2021

Heesun Chung, Bum-Joon Kim, Eugenia Y. Lee and Hee-Yeon Sunwoo

This study aims to examine whether debt financing creates incentives for private firms to engage in earnings management via classification shifting. Especially, the…

Abstract

Purpose

This study aims to examine whether debt financing creates incentives for private firms to engage in earnings management via classification shifting. Especially, the authors examine whether debt-induced financial reporting incentives differ depending on the type of debt (i.e. public bonds versus private loans) and whether such incentives are influenced by the characteristics of external auditors (i.e. initial audits and auditor size).

Design/methodology/approach

The study uses data on 93,427 Korean private firms from 2001 to 2016. Classification shifting is measured by the positive correlation between non-core expenses and unexpected core earnings estimated with ordinary least squares.

Findings

The empirical analyses reveal that private firms engage in classification shifting as do public firms. Importantly, classification shifting is observed only in private firms that have outstanding debt, but not in private firms without debt. Among debt-financing private firms, classification shifting is more prevalent for firms that issue public debt than for firms that only use private debt. In addition, classification shifting of debt-financing private firms is more successful when they are audited by new auditors that are one of the non-Big 4 firms.

Research limitations/implications

The study provides evidence of classification shifting in private firms, which is novel to the literature. However, the inferences in the study depend on the validity of the model for detecting classification shifting.

Practical implications

This study helps lenders enhance their understanding on the financial reporting behaviors of borrowing firms. The results in this study suggest that lenders should be cautious in using core earnings for their investment decisions.

Originality/value

This study contributes to the literature by providing novel evidence of classification shifting in private firms. In addition, the authors contribute to the literature on debt-induced incentives for financial reporting.

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Managerial Auditing Journal, vol. 36 no. 7
Type: Research Article
ISSN: 0268-6902

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Abstract

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Public-Private Partnerships, Capital Infrastructure Project Investments and Infrastructure Finance
Type: Book
ISBN: 978-1-83909-654-9

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Article
Publication date: 21 April 2010

Masaya Ishikawa and Hidetomo Takahashi

This study examines the relationship between managerial overconfidence and corporate financing decisions by constructing proxies for managerial overconfidence based on the…

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Abstract

This study examines the relationship between managerial overconfidence and corporate financing decisions by constructing proxies for managerial overconfidence based on the track records of earnings forecasts in Japanese listed firms. We find that managers have the stable tendency to forecast overly upward earnings compared to actual ones and that their upward bias decreases the probability of issuing equity in the public market by about 4.7 percent per one standard error, which economically has the strongest impact on financing decisions. This tendency is observed when we employ alternative measures for managerial overconfidence and other model specifications. However, in private placements, the choice to offer equity is not always avoided by managers. This implies that managers place private equity with the expectation of the certification effect

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Review of Behavioural Finance, vol. 2 no. 1
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 4 October 2011

Jun Su and Yuefan Sun

The purpose of this paper is to test the effect of informal finance and trade credit on the performance of private firms.

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2797

Abstract

Purpose

The purpose of this paper is to test the effect of informal finance and trade credit on the performance of private firms.

Design/methodology/approach

Based on a survey to private firms in 19 cities, the paper empirically tests the promoting effects of informal finance and trade credit on the performance of private firms in China.

Findings

It was found that informal finance and trade credit have positive effects on private firms' performance measured by ROA. The net income reinvestment rate of private firms is positively related to whether or not the firm adopts informal financing or trade credit financing. A private firm having limited access to formal finance is more inclined to rely on self‐funds and is more limited by financing choices. Informal financing and trade credit can relieve the tension of cash flow chain but cannot solve the financing constraints. The empirical results also show that bank credit is still not the main financing choice for private firms and has not yet played a promoting role in private firms' performance and growth. Informal finance is more important to promote performance in manufacturing industry, while trade credit is more effective in wholesale and trading industry. The results show the coexistence viability of informal financing channels and formal financial institutions in China.

Practical implications

The policy implication is the Chinese Government should take careful steps to regulate informal financing sources.

Originality/value

After some theoretical literature, such as Lin and Sun, this paper explores for the first time the effect of informal financing channels on the performance of private firms.

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Nankai Business Review International, vol. 2 no. 4
Type: Research Article
ISSN: 2040-8749

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Article
Publication date: 1 March 1997

G. OWEN and A. MERNA

This paper outlines the concept of the Private Finance Initiative. It covers some of the basic PFI mechanisms and provides the reader with a general understanding of PFI…

Abstract

This paper outlines the concept of the Private Finance Initiative. It covers some of the basic PFI mechanisms and provides the reader with a general understanding of PFI and the purpose it serves. The paper will look at how the policy has been received specifically within the construction industry and the problems highlighted to date.

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Engineering, Construction and Architectural Management, vol. 4 no. 3
Type: Research Article
ISSN: 0969-9988

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Article
Publication date: 4 January 2016

Joaquim Miranda Sarmento and Luc Renneboog

As public-private partnerships (PPPs) have become more widespread, doubts and criticisms about this type of infrastructural projects have emerged. The authors describe the…

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1867

Abstract

Purpose

As public-private partnerships (PPPs) have become more widespread, doubts and criticisms about this type of infrastructural projects have emerged. The authors describe the PPP framework, discuss the financial structure and risk-sharing processes, and dissect the structure and organisation. The authors address the following questions: what are the main organisational characteristics of PPPs? How does the private sector structure and finance PPPs? And why and how are PPP contracts renegotiated? The paper aims to discuss these issues.

Design/methodology/approach

This paper draws on extensive theoretical and empirical research, which is presented in a literature overview on PPPs and their renegotiations. A comprehensive review is carried out and two case studies are developed to investigate the reasons behind success and failure of PPPs and the renegotiation of contracts.

Findings

Incomplete contracts and the long duration of concessions can bring uncertainty and change to PPPs. Joint decision making can be difficult due to different parties involved. Renegotiation outcomes tend to rely on the position of the government. In Fertagus, the private sector asked for financial help led to a very balanced agreement. Conversely, Lusoponte renegotiations were initiated by the government, which significantly changed the project. Instead of relying solely on commercial revenues, Lusoponte was substantial financed by public funds.

Research limitations/implications

Incomplete contracts and the long duration of concessions bring about much uncertainty to PPPs. Ex post decision making in PPPs in the wake of changing risks is difficult as it necessarily involves negotiations between the public sector and the private firm. The paper shows that marked differences in renegotiation outcomes emerge. In one case study, the private sector asked for financial help and the negotiation outcome was a very balanced agreement. Conversely, renegotiations in a second case were initiated by the government mainly for political reasons, resulted in a significant change in the PPP’s structure, risk, financing, and returns, and yielded a large public losses.

Practical implications

Contrasting successful and unsuccessful PPPs enables the reader to examine the opportunities and pitfalls in case of PPP renegotiations, which frequently occur. He can gain insight in the determinants of negotiation outcomes and the importance of a governmental PPP entity as well as of an independent monitor such as a court of audits.

Originality/value

This paper should be useful for both academics and practitioners and should help increase the understanding of the several stages, structures, and renegotiation processes associated with PPPs.

Details

International Journal of Managing Projects in Business, vol. 9 no. 1
Type: Research Article
ISSN: 1753-8378

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