Research On Project Finance Company Corporate Governance Pattern

The purpose of this paper is studying corporate governance of project finance companys and trying to setup a new coprate governance pattern for project finance companys in order to promote their management efficiency. The theory value of this study is as follows. The project finance companys are the companys in charge of managing project finance. Project finance traditionally belongs to finance area. The reseachers always study its finance structure and risk management. Corporate governance belongs to economic and management area. Reseachers always study the corporate governance of listed companys. As the cross area of several subject, the corporate governance of corporate finance company is still a blank area. The practice value of this study is as follows. Infrustructer investment is the power of economic development in China. Project finance companys are very important in Chinese economy, but they still use normal corporate governance patterns. The shortcomings of corporate governance sometime make there project companys fail in management. So promote the corporate governance level of the project finance companys is very important to support the suceess of big infrastructure investment and the continued economy development.The paper uses logical analyse, qualitative and quantitive analyse, comparable analyse and evidence analyse to reseach and get some innovative results as follows:Firstly, the paper finds the special characters of project finance companys from the specialty assets view. Comparing with normal corporates, project finance companys are special in the area of dispersal of industry, finance characters, asset characters and capital structure. Their basic charater is a company focusing in specialty assets investment and composed with lots of contracts. Traditional corporate governance patterns such as family dominated pattern, share holder dominated pattern, creditor dominated pattern and government dominated pattern are not fit for project companys. They can't solve moral hazard and hold-up problems, so the project finance companys need a new pattern.Secondly, the paper rescans corporate governance from the contract theory view. It uses contract theory and specialty assets theory as basic analytic tools. It takes the companys as a group of contracts and analyse corporate governance problems from the view of contract governance. So the corporate governance of project finance company is how to governance the long term contract of specialty assets. The key point of setting up th new corporate governance pattern is modifying the content of the relavent contract and managing the relationship of contracts.Thirdly, the paper sets up a project finance company corporate governance pattern and demonstrates it with real evidence. The new pattern needs to solute how to spread the risk and allocate the rights of governance among the stake holders by project contracts and finace contracts. According to the order of different corporate governance patterns appearance, the trend is single side governance changing to multi-sides governance. More and more stakeholders involve in corporate governance. The common governance trand also follows the contract theory which says the contractors should be treated eaqully. So based on the stake shold common governance pattern, the paper provides five standards of building project finance company corporate governance patern, which are governance by contract, maximum ex-ante incentive, symmetrical risk sharing and right transferring, minimum ex-post residual right and flexible. By giving the requirement of how to manage selling contract, buying contract, construction contract, O&M contract and credit contract, we setup the SPV governant patern. This patern can be summarized as a common governance patern by signing contracts with shareholder, creditor and other stakeholder ex-anti, sharing governance rights and risks.The project finance company corporate governance pattern is a flexible pattern. The status of stakeholder is decided by the importance of the specialty assets he invests. The advantage of this pattern is lowering the agent cost, avoiding lack of investment and setting up an incentive compatibility mechanism for stakeholds joining corporate governance. This pattern can have longterm stable governance joiners, can protact the shareholders and creditors interest at the same time, which followes Kaldor - Hicks standard. The shortcoming of this pattern is ex-ante trade cost is relative high, disregard of corporate personality and only fitting for one main business companies.The paper uses database, Project Ware (Dealogic), to select 1145 project finance data with spread available and 1278 project finance data with debt/equity available from Jan 1998 to May 2003 as a sample, to verify the project finance companys who set up the project finance company corporate governance pattern by signing longterm project contract ex-anti, have lower spread and higher debt/equity ratio than those who doesn't. That means the former is more efficient than the latter.Finally, the paper gives some advices about how to use the project finance company corporate governance patter to promote Chinese companys'management efficiency. The state owned shareholder, public shareholder, family shareholder, creditor and stakeholder who act as counterparties, they all have the ability of governance, which shows that it is possible to set up project finance company corporate governance pattern. After that, the paper builds three specific governance patterns for power, toll road and public utility which has the most project finance company in China and verifies the pattern can also be used for some state owned companies. The paper has four suggestions to inprove Chinese companies, which are to select corporate governance pattern base on the company's own character, to use project finance company corporate governance pattern in infrastructure investment area and to nurture all kinds of stakeholders'governance ability.