—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.
—Construction industry, prequalification, credit
risk, cash flow.
Wen-Haw Huang is with the Long Reign Development Co., Taipei (email:
Hui-Ping Tserng and Shu-yi Lee are with the Department of Civil
Engineering of National Taiwan University (email: firstname.lastname@example.org;
Hsien-Hsing Liao is with at Department of Finance of National Taiwan
University (email: email@example.com).
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.