title: Determinants of the cost of capital for privately financed hospital projects in the UK.
abstract: Many governments make use of private finance contracts to deliver healthcare infrastructure. Previous work has shown that the rate of return to investors in these markets often exceeds the efficient level. Our focus is on the factors that influence that return. We examine the effect of macroeconomic, project- and firm-level variables using a detailed sample of 84 UK private finance initiative (PFI) contracts signed between 1997 and 2010. Of the above variables, macroeconomic conditions and lead sponsor size are related to the investor return. However, our results show a remarkable degree of stability in the return to investors over the 14-year period. We find evidence of a 'prevailing norm' that is robust to project- and firm-level variation. The sustainability of excess returns over a long period is indicative of a concentrated market structure. We argue that policymakers should consider new mechanisms for increasing competition in the equity market, while ensuring that authorities have the specialist resources required to negotiate efficient contract prices.
authors.affiliation: Department of Finance, Bocconi University, Italy.
authors.forename: Paolo
authors.initials: P
authors.lastname: Colla
authors.affiliation: School of Social and Political Science, University of Edinburgh, United Kingdom. Electronic address: mark.hellowell@ed.ac.uk.
authors.forename: Mark
authors.initials: M
authors.lastname: Hellowell
authors.affiliation: SDA Bocconi School of Management, Italy.
authors.forename: Veronica
authors.initials: V
authors.lastname: Vecchi
authors.affiliation: Department of Finance, Bocconi University, Italy.
authors.forename: Stefano
authors.initials: S
authors.lastname: Gatti
mesh_terms: D002202:Capital Financing / Q000191:economics*; D003695:Delivery of Health Care / Q000191:economics; D006761:Hospitals; D006801:Humans; D007449:Investments; D055818:Public-Private Sector Partnerships; D006113:United Kingdom
keywords: Capital investment; Cost of capital; Hospitals; Internal rate of return; Private finance initiative; Public–private partnerships