Financial intermediation, lender equity and project finance debt mandates
We study market reactions to mining developers announcing project finance debt mandates. We document a significant mean (median) 3-day abnormal return of 4.3% (2.77%), consistent with information transfer from private lenders to equityholders. Thus, the daily market reactions are stronger for debt mandate announcements than for project finance approvals consistent with a greater reduction in information asymmetry and/or the ‘retention of the option to wait’. Cross-sectional tests indicate that debt mandates where lenders hold equity positions in the borrower experience higher abnormal returns, suggesting lender equity conveys important signals of information asymmetry reduction for borrowers in project finance.