Governance issues in financing of public–private partnership organisations in network infrastructure industries

Public–private partnership (PPP) organisational approaches to generation, management and operation of network infrastructure and services have widely followed competitive market forms under different regulatory regimes. Managerial decisions on financing of PPP companies have been governed by regulatory markets with unstable institutions in developing and emerging economies. While debt ownership in the capital structure is often shared by additional financiers like development and multilateral banks, unique agency issues seem emerging from debt and equity ownership arrangements of regulated PPP organisations. Within a theoretical framework of financing of PPP organisations explained by theory of the firm, this research looks into nature, form and unique governance issues in debt and equity arrangements in regulated PPP organisations. Analysis is supported by a survey on debt and equity arrangements in regulated PPP organisations across different infrastructure sectors and developing environments. Findings reveal that debt has not been an effective mechanism to control managers’ behaviour since subordinate financing also functions to address debt agency in the capital structure of those regulated PPP organisations. Thus, results suggest that tying performance of managers with the financial structure of regulated PPP organisation is undermined in developing and emerging economies. These governance issues need to be considered for alternative benchmarks to assess efficiency of infrastructure companies under different regulatory regimes for better infrastructure investment performance in developing environments.