BUSINESS FAILURE IN CONSTRUCTION INDUSTRY

BUSINESS FAILURE IN CONSTRUCTION INDUSTRY
By Roozbeh Kangari,1 Member, ASCE
Business failure is an extremely disruptive force in the construction industry. The chance of failure for a construction company has increased over the past 10 years. In the past five years, the average age of a construction company at failure has been declining. Construction companies must always be aware of the possibility of business failure. Constant monitoring of their financial condition through the use of financial ratios is key. Overall industry indicators must also be monitored and trends analyzed to determine swings in failure probabilities. This paper investigates the effect of macroeconomic factors on business failures in the construction industry, and develops a model for evaluating and forecasting these failures.

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ABSTRACT:

INTRODUCTION

The prospect of business failure is not a topic that most businesses care to acknowledge. In construction, however, failure is a real possibility. The construction industry has characteristics that sharply distinguish it from other sectors of the economy. It is fragmented, very sensitive to economic cycles, and highly competitive because of the large number of firms and relative ease of entry. It is basically due to these unique characteristics that the rate of construction business failures has become very high. Understanding the mechanism of failure is key to attempting to avoid failure.
Corrective action cannot be taken if trouble is not acknowledged or foreseen. Unlike the study of how to succeed in business, the study of business failure has not been given much attention. This is particularly true for the construction industry in the United States. Although some financial institutions have collected information about business failures, no comprehensive study of bankruptcy

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