| description abstract | The long-held conventional wisdom of the construction industry that a contractor’s financial position affects the development of claims, i.e., the inverse relationship between cash and claims, had not been tested against historical financial data. In response, the authors analyzed a total of 119 financial reports issued by major US-based publicly listed construction firms including Fluor, Tutor Perini, Granite, KBR, Matrix Service, Sterling, and Orion using correlation analysis. The authors observed strong meaningful inverse correlations between aggregate dollar amounts of claims and one or more liquidity-measuring financial ratios in the majority of these firms. Further, inverse correlation relationships often became stronger in time-lagged correlation analyses, and certain inverse correlational relationships appeared only in time-lagged analyses. Thus, this study contributes to the body of knowledge by empirically showing an inverse link between the level of claims activity of a typical construction firm and the level of liquidity of the construction firm, often with some time delay. Findings reported in the paper suggest company executives and project owners consider contractors’ liquidity as well when investigating the underlying causes of claims activity. | |
