Causes to Financial Distress in the Swedish Construction Industry. A quantitative study identifying the main causes to financial distress in the Swedish construction industry

Abstract

ABSTRACT Background The construction industry is an important industry for Sweden. The industry employs over 300 000 people and the total investments in constructions amounts yearly over 300 billion SEK. The construction industry is also that industry where the most bankruptcies in Sweden occur. The reason why this industry is especially exposed is unclear. The available research is ambiguous and is mainly focused upon bankruptcies in general, without taking into account differences between industries and countries. Yet, a better understanding of industry related causes to bankruptcies is essential for the construction industry’s entrepreneurs’ ability to prevent them. There are few groups of professions that have an independent and objective insight of the construction industry and its bankruptcies. However, accountants may qualify as one of those groups. Purpose As a bankruptcy is always preceded by financial distress, the purpose of this study is to identify what accountants believe are the driving causes to financial distress in the Swedish construction industry. Method The study applied a quantitative approach, which were executed through a questionnaire. The respondents of the questionnaire are 90 accountants within the Swedish construction industry. Result The survey shows that accountants believe that some causes are considerably more important than others. Analysis When comparing the identified driving causes to financial distress with previous research, many differences are encountered. One reason may be that most previous researchers´ respondents have been former business owners which tend to answer subjectively, while independent accountants tend to answer more objectively. Conclusion This report found that the causes perceived most important by accountants in bankrupted companies were weak financial control, poor cash flow planning, improper budgeting and financial planning, poor knowledge in business administration, and poor pricing, which in several ways differ from previous research. It also seems to be an industry that contains some dishonest entrepreneurs. The industry characteristics may also attract a few entrepreneurs whose main objective is to make some easy money.