The effects of the global financial crisis on the Australian building construction supply chain

Abstract

This study involves a financial analysis of 43 publicly listed and large private companies in the building and construction supply chain from 2005 to 2010; straddling the period of the global financial crisis (GFC); and examines the impact of the GFC on the performance of these companies. The construction supply chain was divided into four sectors – material suppliers, construction companies, property developers and real estate investment trusts (REITs). The findings indicate that the impact was minimal for both material suppliers and construction companies, but especially severe for the more leveraged property developers and REITs. Building material suppliers and construction companies have benefitted substantially from the building economic stimulus package provided by the Australian government to mitigate the effects of the GFC. Decreases in the valuation of assets have, to a large extent, reduced the profitability of property developers and REITs during the GFC but these companies have recovered quickly from these adverse conditions to return to a sound financial position by the end of the 2010 financial year. The results will inform investors, managers and construction professionals in devising strategies for prudent financial management and for weathering future financial crises.

Effect of the global financial crisis on the financial performance of public listed construction companies in Malaysia

“…This showed that these companies had low leverage and were able to pay interest on their debts from their profits. This figure is not much different from the debt ratios of Australian construction companies as reported by Thangaraj and Chan (2012). The cash flow ratio registered a negative figure of 0.9 per cent, and this indicates that the companies were facing difficulties turning sales into cash.…”

“…This continued growth in revenues, despite a slowdown in project awards, was also observed in a number of countries. Thangaraj and Chan (2012) observed that the construction industry in Australia exhibited an increase in revenue, despite the drop in total building starts in 2008 and 2009. This was partly due to the large investments in schools and infrastructure construction as part of the federal government's stimulus packages.…”

“…The Z-score of the construction companies fell into the distress region, primarily due to reduced market capitalisations in 2008 and 2009, but recovered to 1.75 in 2010, indicating a rapid recovery as soon as confidence returned to the market. Thangaraj and Chan (2012) reported a similar decline in Z-scores for Australian construction companies -falling from a high of 4.97 in 2006 to a low of 4.00 in 2010. Although the average Z-score of Australian construction companies was significantly higher than those calculated for Malaysia, two construction companies in the study sample have failed: St. Hillier's Construction in May 2012 and Reed Construction in July 2012.…”

“…Numerous papers have been published on the causes and impact of the GFC on the Malaysian economy (Nambiar, 2009, Goh and Lim, 2010, Ooi, 2010, Ong et al, 2011, but none have specifically assessed the impact of financial crisis on the construction industry. Country-specific research has been limited to the UK (Degiannakis et al, 2012) and Australia (Thangaraj and Chan, 2012), while a broader survey covering Europe, India, China, Hong Kong, Singapore, Korea, the Middle East, Africa, Australia and South America was reported by De Valence and Runeson (2011). The question of how severely the GFC has affected the construction industry in Malaysia remains unanswered.…”

Review of construction journals on causes of project cost overruns

“…Although the construction industry has been introduced with various innovative delivery methods and automation, 2009 has become a turning point for COs-related studies. Perhaps this is due to the global financial crisis, which severely affected the construction sector (Thangaraj and Chan, 2012). Therefore, the researchers of the construction management area have examined and identified causes of COs aiming at developing further mitigation measures to enhance cost performance of the construction projects.…”