Analysis of the role of financial and operation al diversification on the economic performance of Catalan construction businesses (2005-2016)
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Abstract
This study analyzes, from a descriptive perspective, the relationship between economic performance (returns on assets and labor productivity) and variables related to strategic sources of financial resources, in this case trade credit and the use of banking networks. The descriptive analysis of the performance patterns of 5825 Catalan construction firms, during 2005-2016, suggest a relationship of trade credit, bank diversification and business performance. The results indicate that trade credit is an important mechanism to maintain a level of cash flow that allows the business to run its projects and, consequently, generate economic value, in terms of ROA and labor productivity. The use of banking networks associates with better economic results, however, bank diversification (number of banks formally working with the business) seems to generate greater economic benefits in periods of economic slowdown. While, in growth periods, working with one bank appears as a valid strategy associated with higher performance levels.
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