Intra-Sector Firm Performance and its Determinants in the UK Construction Industry

This thesis is a detailed quantitative investigation of intra-sector firm performance in the UK construction industry. Using the value-based model and creating a conceptual tool of assessment from it comprising nine determinants, the research applies this tool to the industry. Over two decades of firm performance data in the key sectors are analysed to answer the firm’s performance question. By doing so, the thesis for the first time combines the disciplines of strategy, economics and finance to analyse the intrasector firm performance question in UK construction.

A panel-based ordinary least squares (OLS) regression is the main approach. However, corrections and adjustments are made for a range of likely econometric issues including heteroscedasticity, autocorrelation, multicollinearity and cointegration. A suite of five different advanced regressions including GLS random effects and maximum likelihood estimations are implemented to validate and corroborate the OLS results. In addition, three different regressions are performed in the sample simultaneously namely in the overall industry, the three key sectors in it and in a time-based pre- and post-credit crisis splicing.

Robust evidence is found for each of the nine determinants and their varied influences on profits in the UK construction industry. Among the important findings here are: evidence for a liquidity-orientated business model in large tracts of the industry; a negative leverage impact on profits only among building sector firms; and a purely positive profits function among civil engineering firms. Based on these findings, firm managers in each sector of the industry are given specific recommendations including: to avoid debt in the buildings sector; to invest systematically in technology and capital assets in the civil engineering sector; and to focus on cost leadership in the specialist trades sector. The analysis also yields important policy insights for regulators and policy think tanks. Noteworthy here are tax-based incentives for inventory management in all sectors of the industry, a technology development institute for the firms in the industry and sector-specific regulatory guidelines for the firms in the buildings sector. The thesis expands the repertoire of creative solutions for the difficult intra-sector firm performance questions of this industry.