Modeling Factors Influencing Project Financing Risk

Document Type : Research Paper

Authors

1 PhD Candidate, Department of Industrial Management, Qeshm Branch, Islamic Azad University, Qeshm, Iran.

2 Assistant Prof., Department of Industrial Management, Qeshm Branch, Islamic Azad University, Qeshm, Iran. Assistant Prof., Department of Industrial Management, South Tehran Branch, Islamic Azad University, Tehran, Iran.

3 Assistant Prof., Department of Financial Accounting, Qeshm Branch, Islamic Azad University, Qeshm, Iran.

Abstract

Objective
Project financing has emerged as a critical mechanism for funding infrastructure and capital-intensive projects across various sectors, both in the public and private domains. Its significance has grown notably in recent decades within the financial market, reflecting its pivotal role in facilitating economic development. Notably, in developing countries, the establishment of robust economic infrastructure is a pressing priority, serving as a cornerstone for overall growth and advancement across multiple economic sectors. However, the insufficient attention given to meeting financing requirements in this domain poses substantial challenges to economic progress. Diving deeper into the realm of project financing, one finds a diverse array of financing mechanisms, each characterized by its unique set of risks and complex capital structures. These risks, if not effectively managed, can exert considerable influence on project outcomes, impacting crucial objectives such as project timelines, cost management, safety protocols, quality standards, and long-term sustainability goals. Understanding these risk factors and their interplay is paramount for stakeholders involved in project financing endeavors.
 
Methods
To explore these dynamics, this study employs an objective-oriented approach, leveraging a descriptive-correlational method for data collection. Central to this methodology is the utilization of Structural Equation Modeling (SEM), a powerful analytical tool that allows for the examination of complex relationships among variables. The study's statistical population comprises a diverse range of professionals, including experts, senior experts, supervisors, and managers from mining companies within the country under study. From this pool, a sample of 220 individuals was randomly selected to ensure robustness and representativeness in the analysis.
 
Results
The study's findings shed light on the intricate relationships between various factors and project financing risk. Notably, the analysis unveils the significant impact of financing methods on political risk, with an observed effect intensity of 0.462 and a probability statistic of 0.686. This surpasses the critical t-value at the 5% error level, underscoring the statistically significant influence of financing methods on political risk. This underscores the importance of considering the choice of financing mechanisms in mitigating or exacerbating political risk factors, thereby enhancing the overall risk management strategy of project financing endeavors. Moreover, the study delves into the relationship between customer and management risks. While the overall effect of customer risk on management risk was determined to be 0.046, the calculated significance value of 0.851 fell below the critical t-value at the 5% error level. This indicates a lack of significant observed effect, suggesting that customer risk may not exert a substantial impact on management risk. Nevertheless, understanding these nuanced relationships contributes to a more comprehensive understanding of the multifaceted nature of project financing risk. Beyond these specific findings, the study highlights a myriad of factors that influence project financing risk, including social risk, contractor risk, construction risk, design risk, legal risk, financial risk, and subsidiary contracts, among others. Each of these factors contributes to the overall risk profile of project financing endeavors, necessitating a holistic approach to risk management and mitigation strategies.
 
Conclusion
In conclusion, the study underscores the critical importance of focusing on project organization and management capability, particularly in the context of developing countries. Inadequacies in these areas often result in suboptimal utilization of resources and capital, leading to delays in project commencement, implementation, and operation, ultimately yielding uneconomical outcomes. In light of the prevalent project-oriented approach adopted by organizations, there exists a heightened imperative to design and enhance project organizations to effectively navigate the complexities of project financing endeavors and achieve desired outcomes.

Keywords

Main Subjects

References

 
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Financial Research Journal
Volume 26, Issue 1
2024
Pages 185-209

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