Predicting construction company decline

Abstract

The main goal of this research is to develop a model that construction company executives can use to determine whether their company is healthy, whether decline is setting in, or whether decline has reached an advanced stage. The construction company decline model is a statistical model that was developed by making use of nonfinancial data collected from construction companies that have filed bankruptcy under Chapter 11 and construction companies that have been functioning without bankruptcy protection. The company profile survey provided information about 21 organizational, human capital, and strategic posture characteristics of construction companies. Factor analysis was used to reduce the number of variables. The factors obtained by performing factor analysis were regressed against decline ratings using multinornial logistic regression. The model allows a user to determine the condition of a company relative to decline. The model was validated by testing it using randomly selected data from the sample. The paper is of relevance to researchers because it contributes to the rather slim body of research in this area. It is of relevance to practitioners too as it provides them with an early warning tool that allows them to conduct a timely turnaround in case their company is in decline.