An Analysis of Investments by Multilateral Development Banks in Central America

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.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 Jose 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 Jose 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.