A Comparative Research on the Variations of PPP Contracts: Availability Payment PPP vs. Concession PPP
It is fair to say that the research on Public Private Partnership (PPP), in particular, on its risk-return profiles, is rare, despite the fact that this form of infrastructure financing has been on the rise during the last two decades in a diverse set of countries. This study aims to fill that gap by offering a comparative study on the two frequently-employed PPP contracts in Korea and other countries - Availability Payment (AP) PPP contracts vs. Concession (C) PPP contracts - with respect to ex post (or realized during the operational stage) risk-adjusted return characteristics. To that end, we compiled an unique project-level data set that covers the performance indicators of those PPP projects initiated during 1995 to 2014 in Korea both at-contract as well as at-operation stages, and applied a three-factor CAPM model to estimate the alpha and beta for those two types of PPP contracts. Our empirical results indicate that: ceteris paribus, AP-PPP entails a higher market-driven risk to the private partners; the systematic risk factors caused by the size and by the book-to-market-ratio have statistically significant effects on the ex post returns; and, the ex post excess returns are shown to be not significant, neither statistically nor economically. Based on our findings, we discuss welfare implications of PPP contracts out of their systematic risk characteristics documented.
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