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2.2.3 Selected variables in the models

To gauge default intensity, we utilise both macroeconomic risk factors and firm-specific attributes extracted from financial statements. The covariates were meticulously chosen from a broad array of variables, informed by an extensive literature review to ensure their relevance to our dataset. These selected covariates serve as indicators of the probability of encountering defaults among private infrastructure corporate/project firms (see below table). The selected variables are all statistically significant in the multivariate analysis.

Table: Selected covariates that serve as indicators of the probability of encountering defaults




Economic rational 

Interest Coverage Ratio

Corporate debt

Operating profit divided by 
interest expense.

Interest Coverage Ratio measures a company’s ability to meet interest payments on its debt obligations, with higher ratios indicating lower default risk due to greater earnings relative to interest expenses

Debt to Asset Ratio

Corporate debt

Total debt divided by total asset

Debt to Asset Ratio reflects the proportion of a company’s assets financed by debt, influencing default risk with higher ratios indicating higher leverage and potentially increased default risk.

Cash Ratio

Corporate & project debt

Cash divided by current asset

Cash Ratio, indicating a company’s ability to cover its short-term liabilities with cash and cash equivalents, may mitigate default risk by ensuring liquidity for debt obligations.

Size of the Firm

Corporate debt

The size of the firm refers to its scale of operations, typically measured by factors such as total assets, revenue, and market capitalisation.

Size of the Firm, often reflecting its financial stability and diversification, influences default by providing greater resources to weather economic downturns or fulfil debt obligations.


Corporate debt

In business since incorporation

Age represents its experience and stability in the market, impact default by indicating a track record of financial management and resilience against economic challenges

Risk-free Rate

Corporate & project debt

3-month risk-free rates for the countries and dates

The Risk-free Rate, as a benchmark for return on investment with minimal risk, influences default by affecting the opportunity cost of capital and the cost of borrowing for firms, thereby shaping their financial viability, debt repayment capability and capital management.

Leverage Ratio

Project debt

Sum of senior outstanding 
liabilities divided by total 

A higher Leverage Ratio generally increases default risk, indicating that firms with higher levels of debt relative to equity may struggle to meet their financial obligations, leading to a higher likelihood of default

Cash Flow Available for Debt Service

Project debt

Cashflows available for debt 
service prefinance post-tax

A higher Cash Flow Available for Debt Service typically reduces default risk, as it indicates the firm’s ability to generate sufficient cash to meet its debt obligations, thereby lowering the likelihood of default.

Quick Ratio

Project debt

Cash at bank plus accounts 
receivable divided by current 

A higher Quick Ratio suggests better liquidity and short-term solvency, potentially reducing default risk by enabling the firm to meet its short-term liabilities more comfortably.

Return on Assets

Project debt

Net profit after tax divided by total assets

A higher Return on Assets indicates better profitability and operational efficiency, which can mitigate default risk by enhancing the firm’s ability to generate earnings to cover its obligations.

Note: Additional business risk and geographic location covariates used

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