The Impact of Global Financial Crisis on Japan's Construction Industry

We investigate the role of financial ratios in Japan's construction firms in explaining the propagation of financial shocks during the 2007 to 14 financial crisis. For our analysis, we applied the new approach of contagion test developed by Fry-McKibbin et al (2016) to test for contagion effect from the US stock market to 47 Japan's construction firms. To investigate how the crisis spreads, the crisis severity index is constructed to measure how vulnerable the Japan's construction industry are to financial crisis. The empirical result shows all 47 Japan's individual construction firms were affected by financial crisis. More specifically, about 23% of the construction market was significantly affected. At the firm level, construction firms with poor profitability, turnover, leverage ratios prior to the crisis were more strongly affected by the crisis. This research contributes to the Japan's construction firm performance literature by demonstrating the contingent effect of external economic conditions