An Analysis of Investments by Multilateral Development Banks in Central America Jose Lopez Rojas Walden University
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Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2016 An Analysis of Investments by Multilateral Development Banks in Central America Jose Lopez Rojas Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Finance and Financial Management Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral study by Jose Lopez Rojas has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. Roger Mayer, Committee Chairperson, Doctor of Business Administration Faculty Dr. Ify Diala, Committee Member, Doctor of Business Administration Faculty Dr. Michael Ewald, University Reviewer, Doctor of Business Administration Faculty Chief Academic Officer Eric Riedel, Ph.D. Walden University 2016 Abstract An Analysis of Investments by Multilateral Development Banks in Central America by Jose Lopez Rojas Master, University UNED, 2004 Master, University ICADE, 2001 Bachelor, University of Lincolnshire, 2000 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University September 2016 Abstract Multilateral development banks (MDBs) are under increased pressure to justify their allocation of donor resources. These funds help produce growth in developing regions such as Central America (CA), where wealth inequality limits individuals’ access to basic services and increases the prevalence of crime and corruption. MDB leaders are not always confident the allocation of limited resources creates optimal value. The capital asset price model (CAPM) was the theoretical framework of this correlational study. Archival data consisting of annual reports and audited financial statements were used to draw a sample ( N = 66) of USD $4.857-asset valued loans made by MDBs between 1995-2013 in 7 CA countries. Regression analysis was used to determine the significance of relationships between the independent variables including the risk-free rate of return (Rf), volatility of a project ( βp), and expected return on the market ( Rm) and the dependent variable, the expected return ( rp) used by MDBs. No evidence of a statistically significant relationship between the expected return of individual loans (adjusted for risk-free rate, volatility, and market return) and the expected return used by MDBs was found using correlational analysis. Findings from multiple regression analysis indicated that the expected return used by MDBs underperforms risk-adjusted market expectations. Study findings may help MDB leaders to promote business development and social welfare in CA through private investments, which may result in positive social change. An Analysis of Investments by Multilateral Development Banks in Central America by Jose Lopez Rojas Master, University UNED, 2004 Master, University ICADE, 2001 Bachelor, University of Lincolnshire, 2000 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University September 2016 Dedication I would like to dedicate this study to my beautiful wife, Ana Guissella, for her love, backing, patience and encouragement, my son José Isaias for his love, and Helena (Discalced Carmelite Nun) for her prayers. I would not have been motivated to pursue this dream without them. Their love kept me inspired. Acknowledgments This study would not have been completed without the help of many caring and supportive individuals. To my mother, Josefina, thanks for raising me, being my advocate, and teaching me to be strong. To my wife, Ana Guissella, you have provided encouragement throughout my educational journey, especially during times when I could not find the strength to continue. To my son José Isaias, you have provided me love, especially during hard times. Thank you, Dr. Mayer, for your persistent and helpful reviews of my work, as well as your continuous encouragement. I would also like to thank Dr. Diala and Dr. Ewald who provided timely and helpful feedback to ensure my work was of high quality. Table of Contents List of Tables ..................................................................................................................... iv List of Figures .................................................................................................................... ix Section 1: Foundation of the Study ......................................................................................1 Background of the Problem ...........................................................................................1 Problem Statement .........................................................................................................2 Purpose Statement ..........................................................................................................2 Nature of the Study ........................................................................................................3 Research Question .........................................................................................................4 Hypotheses .....................................................................................................................5 Theoretical Framework ..................................................................................................5 Operational Definitions ..................................................................................................6 Assumptions, Limitations, and Delimitations ................................................................7 Assumptions ............................................................................................................ 7 Limitations .............................................................................................................. 8 Delimitations ........................................................................................................... 8 Significance of the Study ...............................................................................................9 Contribution to Business Practice ........................................................................... 9 Implications for Social Change ............................................................................. 10 A Review of the Professional and Academic Literature ..............................................10 Capital Asset Pricing Model ................................................................................. 11 Rival and Alternative Theories ............................................................................. 27 i Independent Variable: The Risk-Free Rate of Return .......................................... 30 Independent Variable: Project’s Volatility (Beta Coefficient) ............................. 31 Independent Variable: The Expected Return on the Market (Risk Premium)................................................................................................... 31 Dependent Variable: The Expected Return .......................................................... 32 The Role of MDBs in Developing Countries ....................................................... 32 Economic Growth and MDBs in Developing Countries ...................................... 40 Internal Control Over Financial Reporting ........................................................... 44 Transition and Summary ..............................................................................................53 Section 2: The Project ........................................................................................................55 Purpose Statement ........................................................................................................55 Role of the Researcher .................................................................................................56 Participants ...................................................................................................................57 Research Method and Design ......................................................................................58 Research Method .................................................................................................. 58 Research Design.................................................................................................... 59 Population and Sampling .............................................................................................61 Ethical Research...........................................................................................................62 Instrument ....................................................................................................................63 Data Collection Technique ..........................................................................................64 Data Analysis Technique .............................................................................................65 Subquestions ........................................................................................................