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Working papers – 2022

A série de working papers (em formato digital) tem como Coordenador o Professor Bruno Maia, responsável pelo processo de receção, aceitação e publicação dos trabalhos submetidos.

A publicação de working papers (WP) da (co)autoria de Investigadores Integrados do CICEE, é efetuada após parecer favorável conjunto do Coordenador da série de WPs e de um Investigador Permanente do Centro designado pela Direção do CICEE. A publicação de WPs da (co)autoria de investigadores colaboradores é efetuada após o agendamento da sua apresentação no âmbito do ciclo de seminários de investigação do CICEE.

002 – Governance of PPP Infrastructure Projects: A Variable Capital Structure Valuation Approach

João Pinto, Mário Coutinho dos Santos & Pedro Verga Matos

Over the next decade, governments around the world will invest massively in new projects, aiming at closing the long-identified infrastructure gap, in order to sustain economic and social development, and recover from recent adverse shocks. This paper examines this topic from two perspectives: (i) how should these projects be valued and selected? and (ii) how should these projects be financed? We discuss conceptual, methodological and governance issues raised in the context of infrastructure investment project valuation with variable capital structures. The commonly used free cash flow (FCF) valuation approach may prove inappropriate, or even imprudent, for valuing, namely, very long-term infrastructure projects financed with variable capital structure arrangements. Under this framework, the literature recommends using the Capital Cash Flow (CCF) or the Adjusted Present Value models to mitigate some of the biases of the standard FCF approach. We show that despite dealing with tax benefits differently, FCF and CCF models are algebraically equivalent, the latter being a way to value future cash flows using the same assumptions made in the context of the FCF methodology, while overcoming some of its shortcomings.

001 – Bank Resolution in the EU: What Can We Learn from Banco Espírito Santo Downfall?  

Mário Coutinho dos Santos & Nuno Garoupa

In 2014, the Banco Espírito Santo conglomerate collapsed, thus forcing the first bank resolution regulated by the European Union’s Bank Recovery and Resolution Directive (BRRD). There are different explanations for these events, ranging from bad luck (a consequence of the financial meltdown in 2008) to some sort of last-minute regulatory failure and/or capture. Our empirical findings are consistent with a significantly different explanation – the debacle of 2014 had more structural reasons, going back to the reacquisition of BES by the Espírito Santo family in the early 1990s and their business strategy in the following twenty years. There is significant regulatory failure, but it did not start in the 2010s. According to our understanding, the financial meltdown after 2008 may well have precipitated the unfolding events in 2014. However, the global financial crisis was not the cause—most likely an immediate trigger.

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