A. Thillairajan and Monalisa Behera
Private equity (PE) has emerged as an important source of capital for infrastructure in recent years. There have been more than 2,000 deals by PE infrastructure funds till 2012…
Abstract
Purpose
Private equity (PE) has emerged as an important source of capital for infrastructure in recent years. There have been more than 2,000 deals by PE infrastructure funds till 2012, with annual investments in the range of $100-120bn. Substantial proportion of these investments has been in the energy and the power sector. This paper aims to compare power generation projects with and without PE investment.
Design/methodology/approach
In this study, 148 power generation projects that were implemented in India during 2004-2011 were used for the analysis. Ordinary least squares and three-stage least squares regression have been used to analyze the impact of PE investment on unit project costs and project commissioning time.
Findings
Projects with PE investment had lower unit capacity costs as compared to power projects that did not have PE investment. This indicated the ability of PE investors to select, invest and develop those projects that are cost-effective. However, projects with PE investment had longer commissioning time. This can be attributed to the active monitoring and governance practices that were associated with PE investment.
Practical implications
The results highlight the key role that PE investors can play in power sector development in developing countries. Apart from providing capital to capital-starved economies, PE investors can help in developing cost-effective projects and contribute to sector development by institutionalizing robust processes and governance practices.
Originality/value
This is one of the earliest studies to analyze the impact of PE investment on the power sector.
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Sheeja Sivaprasad and Roshni Dadhaniya
India is one of the largest IPO markets in the world. However, IPO research in the developing world is limited. The purpose of this paper is to test the performance of Indian IPOs…
Abstract
Purpose
India is one of the largest IPO markets in the world. However, IPO research in the developing world is limited. The purpose of this paper is to test the performance of Indian IPOs based on sponsored vs non-sponsored issues. The authors classify the IPO sample into venture capital (VC) and private equity (PE) sponsored issues and non-sponsored ones and include key operating characteristics as performance predictors.
Design/methodology/approach
The dependent variable is the buy-and-hold abnormal returns. The study uses key operating characteristics such as market capitalization, net sales, earnings before interest, taxes, depreciation and amortization, depreciation and amortization, price-to-book, asset turnover and leverage. A cross-sectional analysis is applied to test the long-run performance.
Findings
Sponsored IPO issues convey favourable information to investors about future earnings and prospects of the firm. The findings indicate that sponsored issues and, in particular PE sponsored issues are perceived by investors as having a positive impact on the operational performance of firms that the PE firms are involved in relative to the constituents of the index and this superior operational performance over time also leads to relatively better performing share prices. There are significant differences in terms of market size, industry classification and key operating characteristics across the three groups of issues.
Research limitations/implications
This study has had to deal with much smaller samples of PE and VC when compared to similar studies conducted in the developed markets such as the UK and the USA. Further robustness tests on the market performance using factor models posed a problem due to limitation of the availability of these factors.
Practical implications
For the capital markets investors and policy makers, this research demonstrates the increasingly important role that PE and VC funds play in the investment landscape in India. It exhibits the increasing investor confidence in the Indian capital markets.
Originality/value
Using a sample of Indian IPOs comprising VC sponsored and PE sponsored issues, this study analyses the performance of Indian IPOs in an emerging market setting. This study, thus, contributes to the limited IPO research undertaken in developing markets.
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Abate Andre Modeste and Novice Patrick Bakehe
This paper aims to examine the relationship between the payment of bribes, the access to electricity and the productivity of informal production units (IPUs).
Abstract
Purpose
This paper aims to examine the relationship between the payment of bribes, the access to electricity and the productivity of informal production units (IPUs).
Design/methodology/approach
The data used for this study come from the second Survey on Employment and Informal Sector conducted in 2010 by the National Institute of Statistics of Cameroon and representative at the national level. The survey was conducted among 3,560 IPUs. Survey participants reported whether they had been personally affected by corruption in the twelve months preceding the survey. Relying on the data of this survey, the recursive trivariate probit model was used to study the correlation between corruption and access to electricity.
Findings
The results reveal that the payment of bribes positively influences IPU access to electricity, and consequently access to this infrastructure has a positive impact on company performance.
Research limitations/implications
A main limitation of this paper is the environment of study in which corruption appeared to be institutionalised. It would therefore be interesting to extend the results obtained by conducting research in other countries and also including other infrastructures such as telecommunications.
Practical implications
The main contribution of this research is to highlight the effectiveness of the fight against corruption and its impact on the access of some basics resources that affect the performance of certain companies. Indeed, the fight against corruption would be easier if economic actors had access to certain resources and fundamental infrastructures for their activities. Thus, improving the supply of resources and infrastructures can be an important lever in the fight against corruption in Africa.
Originality/value
This research addresses a vulnerable sector vis-à-vis the pressure of the actors involved in the provision of a service essential to the activity of companies. It highlights the justification for accepting the use of corruption. Indeed, entrepreneurs are faced with a dilemma between moral standards on the one hand, and economic imperatives on the other. If corruption is a condition of access to electricity which, in turn, improves performance, it is easy to pay bribes to gain access to electricity.
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Neerza Neerza and Vanita Tripathi
The purpose of this paper is to explore country-specific and firm-specific factors responsible for attracting private equity investment across sectors in India.
Abstract
Purpose
The purpose of this paper is to explore country-specific and firm-specific factors responsible for attracting private equity investment across sectors in India.
Design/methodology/approach
The analysis involves three macroeconomic variables (rule of law, net FIIs and interest rate) across six sectors. Also, three firm-specific variables (ROE, DTA and EBITDA margin) for 89 companies with private equity across five sectors. OLS, Prais–Winsten, multinomial logit and probit regression models have been used for analysis.
Findings
The findings show that while rising foreign investments drive PE activity in energy and engineering and construction is one sector, strong legal structures and rising interest rates are the drivers of PE activity in the healthcare sector. In firm-specific analysis, though the profitability and leverage effect is invisible in the industrials and healthcare sectors, it is quite significant in IT and telecom is one sector and commodities sector.
Research limitations/implications
Results are subject to limited data on private equity in different sectors. There is a lack of data for comparison on companies belonging to certain sectors like real estate, infrastructure, etc. A limited literature is available for reference purpose. Research findings may serve as preliminary criteria for private equity investors seeking investment in India.
Originality/value
The value of this research is in the identification of most relevant macroeconomic and firm-specific factors for private equity investors seeking investment across sectors in India.
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Thillai Rajan Annamalai and Smitha Hari
Developing countries are increasingly looking to private sector investment for infrastructure development. Successful development of private infrastructure projects, however…
Abstract
Purpose
Developing countries are increasingly looking to private sector investment for infrastructure development. Successful development of private infrastructure projects, however, depends on adequate availability of long-term debt to complement private sector equity. As domestic bond markets in many emerging countries are not very deep, availability of long-term debt funding for infrastructure has been limited. Recently, a new form of financial intermediation has emerged in India with the creation of infrastructure debt funds (IDFs) to create capital pools for long-term debt funding. This paper aims to analyse the effectiveness of IDFs for financing infrastructure projects.
Design/methodology/approach
This paper uses a case study approach. The case studies were written using both secondary and primary information. Secondary information was obtained from various sources such as policy papers, websites and other published sources. Primary information was obtained from interviews with the top management of three IDFs. Information obtained from multiple sources was triangulated for consistency and correctness.
Findings
IDFs have emerged as an effective intermediation mechanism for attracting long-term capital by offering a new investment product with appropriate risk-adjusted returns. For the fund seekers, IDFs are able to provide long-term capital at lower rates and higher flexibility. Unlike commercial banks, IDFs are able to add value to the projects apart from funding by periodic monitoring of the projects.
Practical implications
Creating new forms of financial intermediation can help in reducing the financing gap for infrastructure projects, especially in emerging countries.
Originality/value
IDFs have been analysed from a perspective of financial intermediation. The effectiveness of IDFs in bridging the funding shortfall has been evaluated from multiple perspectives.
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James Dominic and Arun Kumar Gopalaswamy
This paper aims to analyse the effect of the investment duration, the overall market condition and the industry to which the investee firm belongs on exit returns realised by…
Abstract
Purpose
This paper aims to analyse the effect of the investment duration, the overall market condition and the industry to which the investee firm belongs on exit returns realised by venture capital (VC) firms invested in Indian market, using hierarchical regression models.
Design/methodology/approach
The study examines the relationship that exist among the variables of interest by analysing all the 210 exits that happened in the Indian VC market over the period 2004–2017 by using analytical tools such as moving averages, hierarchical regressions and pooled ordinary least squares regression.
Findings
Exit return has an approximate U-shaped relationship with investment duration, and the turning point in the convex relationship happens around seven to eight years after investment. Returns are weakly related to the market condition, discarding the market timing hypothesis. Relationship patterns are found to be generally unvarying during the time period under study.
Research limitations/implications
The results indicate VC funds in the Indian market tend to exit in a brief time span and gain substantial returns from the immediate exits beyond, which returns start dipping. This points to the illiquidity of the Indian VC market wherein the exits from “lemons” are quite tricky, which make them remain invested for longer durations and eroding the value substantially in the process. VC funds may make rational investment/exit decisions in the Indian market capitalising this knowledge.
Originality/value
This study empirically connects the value creating factors in a VC process to the established theories about the early stage investments and analyse the applicability and relevance of those theories in a market with high growth potential like India.
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Alberto De Marco and Giulio Mangano
This paper aims to contribute to understanding the crucial influence of risks on the capital structure of project financing (PF) initiatives in the energy sector.
Abstract
Purpose
This paper aims to contribute to understanding the crucial influence of risks on the capital structure of project financing (PF) initiatives in the energy sector.
Design/methodology/approach
The debt leverage of a capital investment is selected as the response variable, and its relation with select identified risk factors is examined using a regression analysis on a data set of 72 projects carried out all over the world in the energy industry.
Findings
Results have highlighted that the debt leverage is significantly influenced by several sources of risk measured through specific indicators, namely, country stability index, the construction duration, the concession period and the average size of partners. Therefore, country, project and special purpose vehicle-related risks have been shown to have an impact on the debt leverage of a PF scheme.
Research limitations/implications
The results could support both investors and lenders to better define the financial leverage of projects delivered under a PF mechanism. In particular, the study could help to have a better understanding of the main factors that influence the debt leverage in PF initiatives.
Originality/value
This paper contributes to filling the lack of works addressing the relationship between risk factors and capital structure in PF projects. In this way, this research leads to a better understanding of the risk factors that influence the capital structure of a PF initiative, and they have, therefore, been proposed as a basis for the establishment of improved methods to design refined capital structures.
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Omid Sabbaghi, Jing Li and Navid Sabbaghi
This study aims to investigate the cross-sectional and time-series dynamics of realized Certified Emission Reduction (CER) credits issued and the role of investments for a seminal…
Abstract
Purpose
This study aims to investigate the cross-sectional and time-series dynamics of realized Certified Emission Reduction (CER) credits issued and the role of investments for a seminal sample of China’s Clean Development Mechanism (CDM) projects specializing in the wind sector.
Design/methodology/approach
The study investigates the dynamics of realized CER credits issued and the role of investments using traditional cross-sectional and time-series regression analysis.
Findings
The study results find that the level of investment per megawatt (MW) of power generation is an important predictor for the expected number of realized CER credits issued in the cross-section of China’s wind CDM projects. Additionally, the study finds evidence of time trends and seasonality when examining the time series of realized monthly CER credits: CER credits issued are lower in the summer and higher in the winter.
Originality/value
The study results highlight the importance of financing CDM projects and suggest guidelines in which investors are able to better assess how much to invest based on the anticipated CER credits in the Project Design Document. Additionally, the results suggest opportunities for the CDM Executive Board surrounding the Project Design Document and the anticipated CER credits contained therein. The present study contributes to the literature on strategic tools for addressing climate change and offer insights that narrow the gap between empirical finance and sustainable business practice in the context of CDM projects.
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Thillai Rajan Annamalai, Bharat Bansal and Josephine Gemson
The purpose of this paper is to understand the trends and contribution of private equity (PE) investors in real estate development in India because the real estate sector in India…
Abstract
Purpose
The purpose of this paper is to understand the trends and contribution of private equity (PE) investors in real estate development in India because the real estate sector in India had witnessed significant investments from PE firms in recent years.
Design/methodology/approach
The study focused on residential segment of real estate development, as it is the largest among all the segments. Two types of analyses have been done in this paper: first was to compare residential projects with PE investment with those that did not have any PE investment. The results were based on an analysis of 453 residential projects. The second was an analysis of only those projects that had PE investment. This paper studied if there were differences in investment patterns between domestic and foreign PE investors, and dedicated and diversified PE investors.
Findings
Projects with PE investment were larger, as compared to projects that did not have any PE investment. The results of this paper also showed that PE firms preferred to invest with developers who had significant experience in undertaking larger-sized projects. PE investments significantly happened in projects that were located in metro cities. While PE firms as a whole preferred to invest in project mode, domestic investors were more inclined to invest in a project structure as compared to foreign PE firms. Though foreign PE firms invested more amounts per deal on average, there was a negative relationship between foreign PE firms and the extent of their shareholding in the investment.
Practical implications
Encouraging PE investment in real estate projects would contribute toward to increasing the transparency in the sector. Strengthening the domestic PE industry would increase investment flow for real estate projects. PE investors who are able to add value to their investments are able to obtain higher shareholding.
Originality/value
Empirical research on Indian real estate industry is scarce because of the lack of transparency and availability of reliable data. This is one of the initial studies on the Indian real estate sector based on a robust dataset.