From the Boom to the Collapse: a Technical Efficiency Analysis of the Spanish Construction Industry during the Financial Crisis

Abstract

Despite its contribution to the Spanish economy, as far as the authors are aware, the technical efficiency of the Spanish construction industry has neither been measured nor have the factors influencing it been analyzed. This paper measures the technical efficiency of the Spanish construction sector before and during the current financial crisis and investigates the degree to which factors influencing efficiency levels in this sector have changed. Stochastic frontier analysis (SFA) methods are applied to firm-level data (692 constructions firms) over the period 1996-2011. The results show that the average Technical Efficiency of the sector is 0.85. Results also indicate that variables affecting Technical Efficiency in the construction sector must be analyzed depending on real state cycle. Based on the findings, policy recommendations to improve the sector efficiency were developed.Important factors affecting efficiency change have been identified, and some managerial recommendations to increase the sector efficiency have been developed. The main recommendations for construction companies include: (1) cooperation and company mergers have a positive impact on companies’ efficiency; (2) accumulation of excessive financial burden damages the business long-term stability; and (3) business strategy should be tailored to economic prospects.Paper Type: Viewpoint

Organizational Resilience and Performance: An Analysis of the Relevance of Suppliers’ Trade Credit and Bank Diversification in the Spanish Construction Industry

“…The deductions coming from the analysis of the evolution of the Spanish construction sector before and after the crash of the economy lead to the conclusion that the scarcity of financial resources is one of the key factors pushing up the number of bankruptcies in the sector. Yet existing work on the Spanish construction industry mostly focuses on the underlying operational factors that explain productivity losses in the sector, or the relationship between bank lending and activity in the sector (see, e.g., Fernández-López and Coto-Millán, 2015;Gimeno andMartinez-Carrascal, 2010, Horta et al, 2013;Kapelko, Lansink and Stefanou, 2014). These arguments further justify the proposed analysis of the role of alternative sources of finance -in our case, suppliers' trade credit -on performance; looking for a more comprehensive analysis of how construction businesses shape their financial strategy-making in times of economic downturn, and how their credit choices or possibilities impact their performance level.…”

“…In the specific case of Spain, the crisis in the construction sector has been primarily associated with a combination of factors that include fast growing housing supply in the shortterm, high expectations for supply and demand, and high leverage allowances on production and home purchase by financial institutions (Fernández-López and Coto-Millán, 2015;Kapelko, Lansink and Stefanou, 2014).…”

“…Prior studies analysing the situation of the Spanish construction sector during the crisis period have adopted a productive approach in which the allocation of resources and operational efficiency are key aspects of the analysis (e.g., Fernández-López and Coto-Millán, 2015;Kapelko, Lansink and Stefanou, 2014). The analysis of how construction businesses use suppliers' trade credit as a source of financial recourses and how this strategy impacts their performance level has been largely sidelined in prior research.…”

Analysis of the Mortgage Value Evaluation of Construction in Progress

“…The liquidity of the construction-inprogress is affected by many factors, including its own conditions, rights and interests, market auctions, and external economic environment. When assessing the mortgage value of projects under construction, these conditions should be fully considered and reasonable risk factors for realization should be set [9].…”

Efficiency analysis of Catalonia’s construction industry pre- and post-financial crisis: a data envelopment analysis (DEA) approach

“…The growing awareness on the relevance for developing actions plans aimed at promoting a controlled revitalization of the construction industry has led different European administrations to adopt specific policies within the EU 2020 strategic plan with the objective to stimulate the development and consolidation of the construction industry based on sustainable practices (European Commission, 2016). Furthermore, prior work evaluating the Spanish construction industry during the crisis period have mostly adopted a productive approach in which resource allocation and operational efficiency are key elements of the analysis (e.g., Fernández-López & Coto-Millán, 2015;Kapelko et al, 2014). Underlying these studies is the premise that the heterogeneous distribution of resources and capabilities among competing firms is a relevant factor that contributes to explain the ability of businesses to access key resources as well as the observed differences in business performance.…”