Building Big: Risk and the Global Scope of Project Finance Syndicates

Abstract

We analyze the global scope of international project finance syndicates. Because of their risk-responsive nature and stand-alone structure, project finance loan syndicates provide an ideal setting for analyzing how country-level risk and uncertainties associated with adverse events like the recent global financial crisis affect the formation of global partnerships. We argue that higher countries risk and higher uncertainty during times of crisis increase the global scope of project finance syndicates. We test our hypotheses on a comprehensive sample of 8,651 projects in 162 countries signed between 2000 and 2013. Our results highlight that the global scope of syndicates increases with country risk in the project’s host country, and in particular, with politically-related components of country risk. We also show that when going through a major financial crisis, banks reasonably increase the scope of their syndicates in an attempt to diversify. Overall, however, syndicates revert to geographically less dist...