by Robert Bianchi, Michael E Drew, Timothy Whittaker
Understanding the evolution of risk faced by investors over the life of an infrastructure project is important, especially as public policy has shifted to encourage private sector provision of public infrastructure. It is commonly believed that investors in infrastructure projects face the highest risk during the construction phase and risk decreases once operations begin. We test this hypothesis by examining the population of listed toll roads in Australia for the period 1996 through 2010. Our findings reveal that there are high levels of firm-specific risk for toll roads in Australia. Importantly, we report that this firm-specific risk is time varying, with the risk of toll roads being relatively low during the construction phase and subsequently increasing during the operations phase. The empirical evidence presented in this study challenges the conventional perspectives of infrastructure project risk and reveals that the risk for investors it at its highest when the assets shifts from the construction phase to the operations phase. This finding has important implications for investors and policy makers seeking to promote private investment in public infrastructure.
Investment Risk in Toll Roads: A Case Study of Four Projects (Robert Bianchi, Michael E Drew, Timothy Whittaker), In EDHEC Business School Working Paper, 2015.