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Investors’ exit timing of PPP projects based on escalation of commitment

Long project cycle and uncertainties are important characteristics of public-private partnership (PPP) projects. Since the introduction of PPP projects in China, the timing of capital withdrawal has become important. With the emergence of risk factors during the course of the project, it will face t...

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Autores principales: Wang, Yinglin, Chen, Jingyi, Liu, Jicai, Zhou, Chuhan
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Public Library of Science 2021
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8659986/
https://www.ncbi.nlm.nih.gov/pubmed/34506485
http://dx.doi.org/10.1371/journal.pone.0253394
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author Wang, Yinglin
Chen, Jingyi
Liu, Jicai
Zhou, Chuhan
author_facet Wang, Yinglin
Chen, Jingyi
Liu, Jicai
Zhou, Chuhan
author_sort Wang, Yinglin
collection PubMed
description Long project cycle and uncertainties are important characteristics of public-private partnership (PPP) projects. Since the introduction of PPP projects in China, the timing of capital withdrawal has become important. With the emergence of risk factors during the course of the project, it will face the problem of investment withdrawal by social capital financial investors. Escalation of commitment (EOC) refers to the erroneous behaviour of project decision makers who do not promptly withdraw from a project when they receive negative feedback and continue to invest resources in the project. EOC not only causes more unnecessary losses but also adversely affects decision makers. Therefore, it is crucial to clarify the impact of EOC on the choice of the exit timing of social capital. This article adopts literature survey method and quantitative analysis method: introducing the theory of maximization of income into the real option model, combining the net present value method with the binary tree option pricing model, constructing the decision-making model to analyze the exit timing of PPP social capital in the context of EOC. Then combined numerical simulation and empirical analysis to verify the effectiveness of the decision-making model, discussed the reasons why the social capital party chooses EOC, and proposes measures for controlling EOC. The higher the degree of completion of the project, the easier it is for the person in charge of the project to make inaccurate judgements about the project due to personal psychological factors, and the easier it is for EOC to occur. Therefore, after setting the minimum goal of the project, the decision maker needs to accurately evaluate the existing value of the project to avoid falling into decision-making errors.
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spelling pubmed-86599862021-12-10 Investors’ exit timing of PPP projects based on escalation of commitment Wang, Yinglin Chen, Jingyi Liu, Jicai Zhou, Chuhan PLoS One Research Article Long project cycle and uncertainties are important characteristics of public-private partnership (PPP) projects. Since the introduction of PPP projects in China, the timing of capital withdrawal has become important. With the emergence of risk factors during the course of the project, it will face the problem of investment withdrawal by social capital financial investors. Escalation of commitment (EOC) refers to the erroneous behaviour of project decision makers who do not promptly withdraw from a project when they receive negative feedback and continue to invest resources in the project. EOC not only causes more unnecessary losses but also adversely affects decision makers. Therefore, it is crucial to clarify the impact of EOC on the choice of the exit timing of social capital. This article adopts literature survey method and quantitative analysis method: introducing the theory of maximization of income into the real option model, combining the net present value method with the binary tree option pricing model, constructing the decision-making model to analyze the exit timing of PPP social capital in the context of EOC. Then combined numerical simulation and empirical analysis to verify the effectiveness of the decision-making model, discussed the reasons why the social capital party chooses EOC, and proposes measures for controlling EOC. The higher the degree of completion of the project, the easier it is for the person in charge of the project to make inaccurate judgements about the project due to personal psychological factors, and the easier it is for EOC to occur. Therefore, after setting the minimum goal of the project, the decision maker needs to accurately evaluate the existing value of the project to avoid falling into decision-making errors. Public Library of Science 2021-09-10 /pmc/articles/PMC8659986/ /pubmed/34506485 http://dx.doi.org/10.1371/journal.pone.0253394 Text en © 2021 Wang et al https://creativecommons.org/licenses/by/4.0/This is an open access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
spellingShingle Research Article
Wang, Yinglin
Chen, Jingyi
Liu, Jicai
Zhou, Chuhan
Investors’ exit timing of PPP projects based on escalation of commitment
title Investors’ exit timing of PPP projects based on escalation of commitment
title_full Investors’ exit timing of PPP projects based on escalation of commitment
title_fullStr Investors’ exit timing of PPP projects based on escalation of commitment
title_full_unstemmed Investors’ exit timing of PPP projects based on escalation of commitment
title_short Investors’ exit timing of PPP projects based on escalation of commitment
title_sort investors’ exit timing of ppp projects based on escalation of commitment
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8659986/
https://www.ncbi.nlm.nih.gov/pubmed/34506485
http://dx.doi.org/10.1371/journal.pone.0253394
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