The effects of Public-Private partnerships on partnering private sector firms

Dao, H 2017, The effects of Public-Private partnerships on partnering private sector firms, Doctor of Philosophy (PhD), Economics, Finance and Marketing, RMIT University.


Document type: Thesis
Collection: Theses

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Title The effects of Public-Private partnerships on partnering private sector firms
Author(s) Dao, H
Year 2017
Abstract Despite an increase in governments' demand for private participation in infrastructure, Public-Private Partnerships (PPPs) have received low engagement from the private sector in the task of bridging infrastructure gaps in emerging markets. Previous literature in the field mainly focuses on the effects of PPPs from the governments' perspective and it is inconclusive in its examination of the advantages and disadvantages of the private sector's participation. This thesis addresses these issues by answering three main research questions: (i) Do PPPs benefit partnering private sector firms? (ii) Does higher reliance on the government in PPPs benefit partnering private sector firms? and (iii) Does the relationship between institutional quality and PPP projects benefit partnering private sector firms?

Based on corporate finance and incomplete contract theories, PPPs, with their readily costless pledgeable government assets and their government guarantee, are hypothesized to reduce capital constraints faced by private sector firms compared to their non-PPP counterparts. My study analyzes firm market valuation, investment--cash flow sensitivity, bank lending and their determinants for partnering private sector firms.

My main findings are as follows: (i) PPP announcements create positive abnormal returns for partnering private sector firms in China and India. In the long run, PPP involvement reduces investment--cash flow sensitivity in both countries' private sector firms. Especially, PPP private sector firms with political connections can achieve better bank financing in both economies, and this situation is even more robust under the effects of the election event in India; (ii) high reliance on government through government equity participation, political connections and contract mechanisms are more beneficial in China compared to those in India in terms of reducing capital constraints. This aligns with the evidence of increasing overinvestment problems in PPP politically connected firms in India; and (iii) the benefits of lower capital constraints and increased firm value through PPP investments are more pronounced in mature economies with high institutional quality.

To my best knowledge, the study is the first comprehensive study on the effects of PPPs on partnering private sector firms using the corporate finance dimension. It contributes to the extant debatable literature on the role of PPPs, reliance on governments, contract mechanisms and institutional quality on private sector firms. It provides insights on the possible benefits of these unique contractual agreements and attempts to answer the question of whether the intended purpose of reducing underinvestment in the private sector can be fulfilled through PPP contracts. It also contributes to the extant literature on corporate investment decisions and investment efficiency. Moreover, it sheds light on the extant debate on social lending objectives, political corruption views and the role of political connection and institutions. My study provides important guidance on the direction and viability of PPPs in China and India and is extensively applicable to other economies, depending on their PPP market maturity and institutional quality.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Economics, Finance and Marketing
Subjects Finance
Keyword(s) Public-Private Partnerships
investment-cash flow sensitivity
bank lending
firm value
underinvestment
overinvestment
reliance on governments
political connection
institutional quality
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Created: Thu, 05 Oct 2017, 07:58:57 EST by Denise Paciocco
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