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General Information
Editor-in-chief
Prof. T. Hikmet Karakoc
Anadolu University, Faculty of Aeronautics and Astronautics, Turkey

IJET 2013 Vol.5(5): 612-616 ISSN: 1793-8236
DOI: 10.7763/IJET.2013.V5.628

Financial Prequalification for a Contractor by using a Dynamic Threshold Cash Flow Based Model

Wen-Haw Huang, Hsien-Hsing Liao, Hui-Ping Tserng, and Shu-Yi Lee
Abstract—Prequalification plays a crucial role in selecting a capable contractor in construction project. Contractor prequalification studies seldom address contractor financial risk, despite the importance of contractor’s evaluation in successful project completion. Based on a cash flow based structural model using the dynamic threshold by Liao, Chen and Su, this study evaluates the credit quality of construction contractor. Via uses of the area under curve (AUC), the discriminatory performance of the cash flow model in ranking the credit qualities of construction contractors for three year is evaluated, in whichS & P issuer credit ratings are used as the benchmarks. Empirical results indicate that the proposed model has an excellent discriminatory power under AUC. Result of this study demonstrates that the proposed model is highly effective in evaluating the credit risk of construction contractors. Importantly, the proposed model only requires financial statement, making it applicable to both listed and private construction contractors.

Index Terms—Construction industry, prequalification, credit risk, cash flow.

Wen-Haw Huang is with the Long Reign Development Co., Taipei (email: d99521008@ntu.edu.tw).
Hui-Ping Tserng and Shu-yi Lee are with the Department of Civil Engineering of National Taiwan University (email: hptserng@ntu.edu.tw; shuyilee@ntu.edu.tw). Hsien-Hsing Liao is with at Department of Finance of National Taiwan University (email: hliao@ntu.edu.tw).

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Cite:Wen-Haw Huang, Hsien-Hsing Liao, Hui-Ping Tserng, and Shu-Yi Lee, "Financial Prequalification for a Contractor by using a Dynamic Threshold Cash Flow Based Model," International Journal of Engineering and Technology vol. 5, no. 5, pp. 612-616, 2013.

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