STATE OWNERSHIP AND PROJECT FINANCING

Research in management and related fields offers different answers to questions about how partial state ownership in large infrastructure projects (projects) affects overall investment risk. In this chapter, we review those answers and their underlying theoretical assumptions. We then offer our own answer hinging on two factors: the extent of state ownership in a project and the institutional stability of state policies where that project is announced, financed, constructed, and operated. Our answer proposes that state ownership generally increases investment risk unless there is low state policy stability in the host country where the project is located. Then, substantial but noncontrolling minority state ownership provides a second-best assurance against detrimental policy changes and decreases investment risk. We document empirical support for our proposition through analyses of state ownership and investment risk in 1190 projects announced but awaiting financing in 91 countries from 1990-2007. Regression and related empirical analyses indicate that minority state ownership reduces the likelihood that financing will be significantly delayed for projects located in host countries with low policy stability. Partial state ownership signals assurance against detrimental policy changes, but also possible interference under existing policies. Our study demonstrates the limited circumstances when the assurance signal dominates and partial state ownership acts as a helping rather than hindering hand to private investors and the projects they fund and govern.