Contracts,governance, and country risk in project finance: Theory and evidence

Project finance links financial structure to the operational characteristics of the project to optimize the allocations of various project risks. We develop a model in which concession grants and offtake agreements benefit both public and private sponsors in the presence of political risk. The public can use these contracts to incentivize the private sponsor to undertake an otherwise unacceptable project while benefiting from delegating the process of financing, building, and operating the project to the private sponsor. For the private sponsor, the government concession grant, while improving financial returns, entails political influence. We develop hypotheses connecting these contract choices to the public–private partnership governance structure of project finance and provide supporting evidence. Our findings suggest that a country's political and financial risks have significant impacts on the contract choice as well as the public–private governance structure in project finance. Projects in greater political risk countries tend to be structured with less government involvement in order to avoid political influence of the local government. Projects with the private finance initiative end up with more government involvement and control in order to protect the public interest.     

De facto power in a transition economy: The case of China

That firms actively influence public policy to advance private interests is taken for granted in most economies. In China, the activism of public actors in shaping private interests suggests that the public rather than private sector is more influential to the political economy. In this paper, we test the extent to which this is true in among Chinese provinces. We conduct a cluster quasi-experiment using the 2012 anti-corruption campaign. We find that the declining involvement of public actors in economic decisions during the campaign did not result into lower productivity in provinces with higher private sector participation, especially in unregulated industries and those not dominated by state-owned enterprises. De facto political power from 30-years of private wealth accumulation may have helped establish market-driven norms of economic behavior, strengthening the political economy against the vicissitudes of public actors.     

Citizen Participation in Governance

The existence of an effective means of citizen participation within public service decision-making forums will be one of the biggest challenges for public mangers in 2010. The establishment of systems which bring citizen representatives into the polity can provide unique opportunities for citizen inputs-one such system is the school governing body, made up of citizen, professional and political representatives. This article reports on an investigation into citizen participation within the governance of schools. It finds that while governing bodies provide the opportunity for citizen participation, citizens are not actively involved in school governance. A number of measures are recommended which may assist in enhancing the citizen governance role.     

The disciplinary process of the accounting profession: protecting the public or the profession? The Québec experience

The voluntary self-regulatory system of the accounting profession was criticized in recent years for its lack of effectiveness, of public representation, and the conflict between the profession's desire to protect its industry and its “role as self-regulator and protector of the public” (Coofee, Working Paper, Columbia Law School, 2001, p. 22 (available on SSRN Electronic Library at id=270944)). This study examines the role of disciplinary activities of the profession in protecting the public interest in the Canadian province of Québec, a jurisdiction where, although the profession is self-regulated, several rules are imposed by the government, including mandatory public participation and oversight by a regulatory agency.My results indicate that at the trial stage, which is heavily regulated and where public participation is high, public-interest violations predominate, are considered more serious than private-interest violations, and result in more severe sanctions. At the inquiry stage, which is characterized by a lower level of public involvement and a high degree of discretion, the results indicate that the decision of whether or not to prosecute a case depends on the cost of the disciplinary process, the notoriety of the case, and the risk that the case if prosecuted results in an acquittal. These findings suggest that the preponderance of the public interest over the private interest depends on the degree of regulation and public participation.     

私人信息、公开信息与中国的金融市场参与

金融市场的发展能够为长期的经济增长提供动力,家庭对金融市场的有限参与是制约金融发展的重要因素之一。2015年中国绝大多数家庭未能参与金融市场。本文采用倾向得分匹配方法考察了私人信息和公开信息对家庭金融市场参与的影响以及两者的影响差异。基于2015年CGSS数据集的分析结果显示,家庭拥有金融市场私人信息或者能够充分获取公开信息都会显著提升其参与金融市场的概率。家庭获取公开信息的渠道越广泛,经由各种渠道获取的公开信息越多,参与金融市场的概率就越高。总体而言,充分获取公开信息比拥有私人信息对家庭金融市场参与的影响更大,这是源于个体对两种信息质量预期的不同。公开信息具有比私人信息更广泛的信息来源和更强的可验证性,这提升了家庭对公开信息质量的预期,为其提供了参与金融市场的更大激励。对中国而言,改善政策制定和执行的效率以及政策承诺的可信性有助于提升家庭对公开信息质量的预期,从而鼓励家庭参与金融市场。     

Auditor Choice in Politically Connected Firms

We extend recent research on the links between political connections and financial reporting by examining the role of auditor choice. Our evidence that public firms with political connections are more likely to appoint a Big 4 auditor supports the intuition that insiders in these firms are eager to improve accounting transparency to convince outside investors that they refrain from exploiting their connections to divert corporate resources. In evidence consistent with another prediction, we find that this link is stronger for connected firms with ownership structures conducive to insiders seizing private benefits at the expense of minority investors. We also find that the relation between political connections and auditor choice is stronger for firms operating in countries with relatively poor institutional infrastructure, implying that tough external monitoring by Big 4 auditors becomes more valuable for preventing diversion in these situations. Finally, we report that connected firms with Big 4 auditors exhibit less earnings management and enjoy greater transparency, higher valuations, and cheaper equity financing.     

Bringing ideology in: the conservative white male effect on worry about environmental problems in the USA

Extending existing scholarship on the white male effect in risk perception, we examine whether conservative white males (CWMs) are less worried about the risks of environmental problems than are other adults in the US general public. We draw theoretical and analytical guidance from the identity-protective cognition thesis explaining the white male effect and from recent political psychology scholarship documenting the heightened system-justification tendencies of political conservatives. We utilize public opinion data from nine Gallup surveys between 2001 and 2010, focusing on both a single-item indicator and a composite measure of worry about environmental problems. We find that CWMs indeed have significantly lower worry about environmental problems than do other Americans. Furthermore, the results of our multivariate regression models reveal that this CWMs effect remains significant when controlling for the direct effects of political ideology, race, and gender and the effects of nine social, demographic, and temporal control variables – as well as the effect of individuals generalized (nonenvironmental) risk perceptions. We conclude that the white male effect is due largely to CWMs, and that the latters low level of concern with environmental risks is likely driven by their social commitment to prevent new environmental regulations and repeal existing ones.     

Political risk,project finance,and the participation of development banks in syndicated lending

How should loan contracts for financing projects in countries with high political risk be designed? We argue that non-recourse project finance loans and the participation of development banks in the loan syndicate help mitigate political risk. We test these arguments by conducting a study with a sample of 4978 loans made to borrowers in 64 countries. Our results show that if political risk is higher, then project finance loans are more likely to be used, and development banks are more likely to participate in the syndicate. We also show that the terms of the loan contract depend not only on the political risk but also on the legal and institutional environment as well.     

Participation in the National Flood Insurance Program: An Empirical Analysis for Coastal Properties

A perennial question about the National Flood Insurance Program is: how can participation be increased? An empirical analysis of individual‐level data reveals that in a sample of coastal areas the participation rate is 49 percent of eligible properties. Participation responsiveness to price is inelastic, but it has been increased by the mandatory purchase requirements for mortgage borrowers. Easing conditions for participation in the program would probably not reduce flood control measures, such as seawalls, which may degrade beach conditions and coastal ecosystems.     

Nuclear licensing in the United States: enhancing public confidence in the regulatory process

A nuclear regulator’s paramount purpose is to utilize its expertise to ensure protection of public safety. But, recent actions by countries, such as Germany, to phase out nuclear power illustrate that public perception of nuclear safety can change swiftly despite a country’s long history of safely operating nuclear power plants. Public trust, acceptance, and involvement in nuclear regulatory decisions, therefore, are critical to a successful nuclear power program. In the United States, the US Nuclear Regulatory Commission (‘NRC’) has a long-standing practice of conducting its regulatory responsibilities in an open and transparent manner. The NRC, as a regular part of its decision-making process, also reaches out to affected and interested parties and invites their involvement in its regulatory processes. The NRC’s efforts to instill public confidence are an explicit recognition that nuclear safety and security are the public’s business. While the NRC must balance the public’s rights to participate in the licensing process with the applicant’s right to an efficient and timely licensing decision on an application, ultimately the NRC’s decision-making process is more effective and more broadly accepted by the public when it includes participation of a diverse range of interested and affected parties.     

Political spending,related voluntary disclosure,and the cost of public debt

Following the Supreme Court decision in the Citizens United v. Federal Election Commission case of 2010, which removed restrictions in relation to firms’ political spending, and building on the growing debate over whether voluntary political spending disclosure (VPSD) provides valuable information, we examine the effect of political spending on the cost of public debt and the role of VPSD on this effect. Based on a measure of VPSD that became available in 2012 and a large dataset on US firms’ actual political spending, manually extracted from different filings, we provide novel evidence that, in the post-Supreme Court decision period, political spending increases the cost of public debt. This is consistent with the uncertainty associated with political spending. Moreover, we find that the level of voluntary disclosure weakens the positive association between political spending and the cost of public debt. These results hold across multiple specifications as well as when we use a sudden release of firms’ political spending as an exogenous shock to political spending.     

Incomes,Incentives and the Growth of Means-Testing in Hungary

The purpose of this paper is to examine the reform of family benefits and the growth of means-testing in Hungary. From 1996, many family benefits were means-tested for the first time. A new microsimulation model for Hungary, running on recent survey microdata, is used to simulate the impact of the 1996 reforms on government expenditures, the distribution of incomes, the targeting of benefits and effective marginal tax rates. These reforms are found to be largely benign and even progressive, but they also appear to be paving the way for the further extension of means-testing. The model is used to investigate such an extension by simulating the impact of a UK-style system of means-tested family benefits in Hungary. This system achieves some expenditure savings and better targeting of benefits, but also greatly increases effective marginal tax rates on low-income households with children. The paper argues that resulting poverty traps may increase child poverty in Hungary in the longer term and cautions against the overextension of means-testing.     

Public discourse and cosmopolitan political identity: Imagining the European Union citizen

European Union citizenship has thus far been constructed largely in national and economic terms, which are unlikely to redeem the promise of a rich and vibrant political future in the wake of the EU constitution. Therefore, one of the central challenges facing scholars, political leaders and citizens is to fashion new argumentative spaces that enable citizens to forge cosmopolitan political identities that may help to fulfill the vision of alternative futures. This paper addresses the rhetorical dimensions of European Union citizenship as it focuses on public discourse as constitutive of new models of political participation and engagement. Tracing the idea of citizenship in the writings of Hannah Arendt, Immanuel Kant, and Giambattista Vico, discourse and imagination become necessary for a new dimension of European Union citizenship.¹     

Beyond Self‐Evident: Recognising the Problematic Political Context of Accrual Accounting Adoption in South Korea

This paper responds to a recent call by researchers that we need to move beyond both advocacy of and technical arguments about the value of accrual accounting to more fully recognise the institutional forces, key change agents and the local political fields. We draw on elements of institutional theory and the practice theory of Pierre Bourdieu to explore the ‘problematic’ aspects of institutional forces, key organisational change agents and the local political field associated with the adoption of accrual accounting in the South Korean public sector. We found that accrual accounting was driven by many factors including a local financial scandal, the advocacy of a civil society group and the ambitions and the ideology of key actors. The contribution of this paper is that it shows how the practices of accounting cannot be separated from their political and personal context.     

Risk at a turning point?

There is increasing recognition in comparative risk assessment of the intrinsic subjectivity of fundamental framing assumptions and the consequent necessity for active participation in analysis by all interested and affected parties. Despite this, there remains considerable inertia in the implementation of these insights in formal policy making and regulatory procedures on risk. Here, the issue seems as often to be seen as a need for better 'communication' and 'management' as for better analysis, with attention devoted as much to the classification of divergent public perspectives as to techniques for direct stakeholder participation. Pointing to the fundamental methodological problems posed in risk assessment by the conditions of ignorance and Arrow's impossibility, the present paper contends that public participation is as much a matter of analytical rigour as it is of political legitimacy. It is argued that straightforward techniques such as multi-criteria and sensitivity analysis, along with a formal approach to diversification across portfolios of 'less risky' options, may go some way toward addressing these apparently intractable problems.     

Private Hochwasservorsorge und Elementarschadenversicherung

In light of increasing flood damage, private flood mitigation gains more relevance. We investigate empirically whether the uptake of private flood mitigation measures in Germany is affected by (a) the perceived flood insurance coverage, and (b) public information campaigns focussing on flood hazards. We use a novel longitudinal dataset of more than 3200 households and employ a difference-in-differences estimation approach. The results show that households who state a change in their insurance status and report themselves as being insured mitigate more, not less. This contradicts the expectation of moral hazard and suggests that insurance and mitigation are rather seen as complements than substitutes. Moreover, the survey data suggest that many households falsely expect being flood-insured. Public information campaigns show no measurable effect on the flood mitigation behaviour of households, which poses questions about the effectiveness of large-scale information campaigns. In tendency, our results support the idea of compulsory flood insurance.     

Insurgency and Credible Commitment in Autocracies and Democracies

The inability of political actors to make credible promisesto broad segments of society—a previously unexplored determinantof civil war—causes both elected and unelected governmentsto pursue public policies that leave citizens worse off andmore prone to revolt. Noncredible political actors are alsoless able to build counterinsurgency capacity. Popular dissatisfactionwith rulers reduces the costs to counterinsurgents of overthrowingregimes, discouraging rulers from building counterinsurgencycapacity in the first place; lack of credibility prevents rulersfrom writing contracts with counterinsurgents that maximizecounterinsurgency effort. Empirical tests across numerous subsamplesusing various measures of political credibility support theconclusion that broad political credibility ranks at least ashigh as social fractionalization and natural resource rentsas a cause of conflict.     

The two faces of social capital in private flood mitigation: opposing effects on risk perception,self-efficacy and coping capacity

Impacts of flooding are expected to increase, most notably in residential areas. As a consequence, private households are increasingly encouraged to engage in private flood mitigation complementary to public measures. Despite the growing literature on private flood mitigation, little is known about how social capital influences households’ perception of and coping with flood risks. This study draws on survey data of 226 flood-prone households in two Austrian Alpine municipalities, both recently affected by riverine flooding. We show that social capital cuts both ways: on the positive side, social capital increases perceived self-efficacy and provides critical support during and most notably after flood events. On the negative side, social capital reduces flood risk perceptions of private households. While social ties are effective when responding to and recovering from floods, the expectation of social support downplays risk, making precautionary action by households less likely. The results also show that flood-affected households receive more social support than they provide to others. In the long-run, this can lead to a problematic reciprocity imbalance, challenging the long-term stability of the interpersonal exchanges underlying social capital. Among the various sources of social support, informal social networks (neighbours, friends and relatives) provide the most important workforce in the response and recovery phase of a flood event. It is therefore crucial for flood risk management to recognise and promote the protective quality of social capital alongside conventional structural and non-structural measures.     

FOREIGN INVESTOR PARTICIPATION IN PRIVATIZATIONS: DOES THE INSTITUTIONAL ENVIRONMENT MATTER?

We examine the determinants of foreign investors' participation in the privatization process of developing countries. First, we estimate the probability that foreign investors target privatized firms in a given country. We show that a favorable legal environment where investor protection is higher enhances foreign investors' participation. Foreigners also prefer large, strategic firms from high‐growth economies and socially stable countries with low political risk. Second, we restrict our analysis to privatized firms that foreign investors actually choose and show that the stakes foreigners hold are larger if the firms are privatized by private sales as opposed to public offerings.     

Political Knowledge and Attitudes towards Centralisation in Europe

We analyse the impact of political knowledge on the attitudes of European citizens towards the possible distribution of competences between the European Union (EU) and the Member States. Our hypothesis is that citizens who are more informed about the EU will support the centralisation of competences in some policy areas according to the lines predicted by the fiscal federalism literature. We test our hypothesis using micro data from the Eurobarometer survey, taking into account the endogeneity of political knowledge. We find that more knowledgeable citizens are more willing to favour centralisation to the EU in areas where public intervention by individual Member States causes externalities, where economies of scale in the provision of public goods are important and where redistributive and stabilisation functions have to be pursued.