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An Empirical Analysis Of The Determinants Of Project Finance: Cash Flow Volatility And Correlation, Zinat S. Alam
An Empirical Analysis Of The Determinants Of Project Finance: Cash Flow Volatility And Correlation, Zinat S. Alam
Finance Dissertations
This paper investigates the effect of correlation and volatilities of firm and project cash flows on the choice of project finance. I use a pure-play approach to measure unobservable project cash flows for a sample of 440 US and non-US firms that invested in 577 projects from 1990 to 2008 and find evidence that the probability of project finance is increasing in cash flow volatility difference between firm and project cash flows. The likelihood of the project finance is greater when volatilities are different and the correlation between firm and project cash flows is high. I also find that firms …