Equipment Investment Finance Strategy for Large Construction Firms in Ghana

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The study of financing practices of construction firms is largely considered an important subject in relation to the growing number of projects that demand considerable financial input and equipment investment. It is clear that firms' financing issues play significant role in their day-to-day business operations. However, little empirical research has been conducted to investigate the financing practices of construction firms in Ghana. In addition, knowledge on how best to engage stakeholders towards suitable financing options for construction firms is lacking. This study advanced knowledge on strategic decision choices in relation to large construction firms' financing practices in Ghana and examined the factors that influence the financing strategy adopted by these large Ghanaian construction firms. A review of literature on corporate finance practices in terms of capital structure and financing decisions revealed some gaps in knowledge, which guided the setting of the objectives and the key research questions in this study. The philosophical position of the research influenced the methodology adopted for this study. While taking a realist view in ontological assumptions, it holds positivist stance in epistemological traditions with value free axiological undertakings. Adopting multiple research approach, the empirical investigation was conducted using structured interviews and survey questionnaire. The interviews were conducted prior to the survey to solicit in-depth information about the financing practices of these large contractors. The interviews led to the identification of key issues which were not mentioned in literature. These concerns were later investigated and tested using survey questionnaires. Conforming to the orthodoxy of census sampling technique, the dataset was obtained from 54 large construction firms operating in Ghana. The consideration of overlapping aspects of the study largely motivated the use of factor analysis to analyse the data which made it possible to make scientific deductions, descriptions and built explanations from the results. Four major findings have emerged with regard to the problems inherent in contractors* equipment finance practices, which were manifested in legal policy gap, information gap, repayment gap and credit gap. The study established that finance gap exists between construction firms and financial institutions in Ghana, mainly because of the imbalance between the demand and supply side of finance. With regard to the causes of the finance gap; lending policy gap, management gap, financial strength gap and information gap were observed by the study as the main origins. The study provides significant contribution to knowledge and fills the empirical research gap by deriving six new brands of uncorrected variables that better explain firms' financing practices and decisions. These variables were manifested in the financial condition of the firm, macro-economic indicators, bankruptcy cost, financial risk, transaction cost and financial policy of the firm. The development of regression models using these variables to establish the relationship between the explanatory variables and dependent variables (equity finance and debt finance) together with the management and sustainability of suitable financing programme for construction firms in Ghana are recommended by this thesis as potential areas of further research. Several policy measures have emerged by the performance of this research and explained in terms of establishing specialized construction bank, constitution of adequate fiscal legal framework, formation of reliable information bureau system, establishment of credit guarantee scheme, development of strategy for financial capability and introduction of diminishing partnership formula. Key Words: Construction Firms, Equipment Acquisition, Factor Analysis, Financing Decision, Investment  
A Thesis submitted to the Department of Building Technology, Kwame Nkrumah University of Science and Technology In partial fulfillment of the requirements for the degree of Doctor of Philosophy, 2008