Tserng, H P; Liao, H H; Jaselskis, E J; Tsai, L K and Chen, P C (2012) Predicting construction contractor default with barrier option model. Journal of Construction Engineering and Management, 138(5), pp. 621-630. ISSN 0733-9364
Abstract
This is the first study to apply the barrier option model to predict defaults of construction contractors and to assert that the path-dependent characteristic of the model is very suitable for describing the behavior of contractor default. Different from existing contractor-default prediction models, this research uses a much larger contractor sample in empirical analyses to alleviate sample-selection biases, and employs a Receiver Operating Characteristics (ROC) curve to assess the model performance. Empirical results of this study show that the proposed model outperforms traditional financial ratio models in differentiating the risk of defaulted and nondefaulted construction contractors. Additionally, the barrier option model has markedly better discriminatory power than when applied to non-construction-related industries. The results of this paper support the postulation that the barrier option model has significant advantages for the construction industry.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | financial factors; predictions; risk management |
| Index terms: | risk management, financial factor, construction industry, option, bias, financial ratio, construction contractor, default, prediction model |
| Subjects: | dispute resolution, practitioner, risk assessment, prediction and forecasting, economic analysis, probability and distributions, industry analysis, decision analysis |
| Topics: | Roles and Professions, Risk Management, Research Practice, Business Strategy, Legal Issues |
| Descriptive scope: | 4 PCTA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here