Information Asymmetry, Financial Intermediation, and Wealth Effects of Project Finance Loans

Ferguson, A; Lam, P

Information Asymmetry, Financial Intermediation, and Wealth Effects of Project Finance Loans

Ferguson, A Lam, P

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Publisher:: Oxford University Press (OUP)
Publication Type:: Journal Article
Citation:: The Review of Corporate Finance Studies, 2021
Issue Date:: 2021-10-30

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Field	Value	Language
dc.contributor.author	Ferguson, A
dc.contributor.author	Lam, P
dc.date.accessioned	2022-01-13T05:06:21Z
dc.date.available	2022-01-13T05:06:21Z
dc.date.issued	2021-10-30
dc.identifier.citation	The Review of Corporate Finance Studies, 2021
dc.identifier.issn	2046-9128
dc.identifier.issn	2046-9136
dc.identifier.uri	http://hdl.handle.net/10453/153053
dc.description.abstract	<jats:title>Abstract</jats:title> <jats:p>Using a unique hand-collected sample, we study market reactions to mining developers announcing project finance loans. We document a significant three-day abnormal return of 2.6% and a 3.4% reduction in abnormal bid-ask spread around loan approvals, consistent with information transfer from private lenders to equity holders and reduction in asymmetric information. Cross-sectional analysis reveals a negative association between announcement return and hedging requirements specified in loan contracts, which becomes insignificant after controlling for treatment effects of hedging. Specialist banks do not charge lower rates but are more likely to impose hedging requirements, consistent with rent extraction due to bargaining power. (JEL G30, G32)</jats:p>
dc.language	en
dc.publisher	Oxford University Press (OUP)
dc.relation.ispartof	The Review of Corporate Finance Studies
dc.relation.isbasedon	10.1093/rcfs/cfab022
dc.rights	info:eu-repo/semantics/openAccess
dc.title	Information Asymmetry, Financial Intermediation, and Wealth Effects of Project Finance Loans
dc.type	Journal Article
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Accounting Discipline
utslib.copyright.status	open_access	*
dc.date.updated	2022-01-13T05:06:17Z
pubs.publication-status	Published online

Abstract:

Abstract Using a unique hand-collected sample, we study market reactions to mining developers announcing project finance loans. We document a significant three-day abnormal return of 2.6% and a 3.4% reduction in abnormal bid-ask spread around loan approvals, consistent with information transfer from private lenders to equity holders and reduction in asymmetric information. Cross-sectional analysis reveals a negative association between announcement return and hedging requirements specified in loan contracts, which becomes insignificant after controlling for treatment effects of hedging. Specialist banks do not charge lower rates but are more likely to impose hedging requirements, consistent with rent extraction due to bargaining power. (JEL G30, G32)

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http://hdl.handle.net/10453/153053