Determinants of Small and Medium Construction Firms’ Financial Performance

Abstract

AbstractPurpose Whereas construction firms in developed economies often exhibit sound and positive financial performance, the opposite is prevalent in developing economies. It is due to a lack of evidence and consensus on what determines financial performance in the construction context. This paper explores the determinants of Small and Medium Construction Firms’ Financial Performance in Ghana through factor analysis. Study design/methodology/approach The paper employed a factor analytic approach to validate the financial variables of contractors, involving 125 respondents from two areas in Ghana in a cross-sectional survey using a self-administered structured questionnaire for data collection. Confirmatory factor analysis (CFA) discovered the underlying latent variables that significantly influence the contractor’s financial performance were discovered using confirmatory factor analysis (CFA). Findings According to the findings, three dimensions relevant to the research setting emerged: funding strategy, management strategy, and prior performance. The developed model’s constructs have a high level of reliability and validity. Originality/value The research adds to the body of knowledge in construction financing models in developing nations. Research limitations The findings of this study should be interpreted in the context of Sub-Saharan Africa, particularly the Ghanaian construction industry. Before making broad generalizations, similar research should be conducted in similar circumstances in multiple nations. Practical implications Construction companies could easily measure their financial performance using the developed instrument items. Social implications The research has a broader social impact in influencing the construction business community’s view and acceptance of the findings in managerial decision making aimed at enhancing the company’s financial health.KeywordsContractorFinancial performanceCash flowFinancial ratiosGhana