Capital structure optimization for Infrastructure PPP Projects: A Literature Review Approach

Abstract

Purpose: Public-Private Partnership (PPP) has emerged as an innovative mechanism in infrastructure development offering a collaborative approach between the government and private sectors. The objective of this study is to review the literature on capital structure optimization that balances the interests of various stakeholders, including the government, private investors, and lenders to make the project sustainable in the long run.

Design/Methodology/Approach: The study critically reviewed the literature, specifically focusing on optimizing capital structure of infrastructure PPP projects to gain deep understanding of significance of capital structure, evolution of its theories, factors that determine the financing decisions and different approaches to optimize capital structure.

Findings: The study highlights two primary domains of research in existing literature: 1) factors that influence capital structure, encompassing project-specific elements (such as contract type, investment volume, and sponsor configuration) and macro-level country-specific parameters (including GDP growth, inflation, and regulatory stability); and 2) approaches for optimising capital structure, where optimization models range from static frameworks to more sophisticated and adaptive methods such as linear programming, Monte Carlo simulation, and multi-objective optimisation.

Originality/Value: The study extends the current literature by performing an extensive review and offering a comprehensive perspective on the factors and various approaches used to optimize the capital structure of infrastructure PPP projects.

Paper Type: Review of Literature