Abstract
In this paper, we investigate whether, Public Private Partnerships (PPPs), with readily pleadgable Government assets, reduce the capital constrains faced by private sector firms in emerging markets. We use PPP announcement data, the World Bank’s Private Participation in Infrastructure database and financial data of partnering private sectors firms in China and India and find that: 1. PPP announcements add value to the partnering private sector firms in both India and China; 2. However, nature of firm that invests in PPP varies in both economies. Compared to Chinese firms, Indian firms face severe underinvestment problem at the time of investing in PPPs; 3. In the long run, PPPs reduce potential over-investment problem in China. Whereas, Indian firms’ underinvestment problem persists; 4. Government reliance, political uncertainty and contractual features significantly affect the investment-cash flow sensitivity in both countries.
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