Financial Risk Management and Financial Performance of Construction Companies in Greater Kampala Metropolitan Area

Frederick Nsambu Kijjambu; Benjamin Musiita; Sheila Akampwera

doi:10.22610/jebs.v17i4(J).4808

Author

Frederick Nsambu Kijjambu
- Faculty of Business and Management Sciences, Mbarara University of Science and Technology, Uganda
- Uganda
Benjamin Musiita
- Faculty of Business and Management Sciences, Mbarara University of Science and Technology, Uganda
- Uganda
Sheila Akampwera
- Faculty of Business and Management Sciences, Mbarara University of Science and Technology, Uganda
- Uganda

Abstract

The financial performance of construction companies depends significantly on their ability to manage financial risks. This study examined the effect of financial risk management on the financial performance of construction companies focusing on three dimensions: risk identification, risk assessment and evaluation, and risk management strategy. Guided by Modern Portfolio Theory, the study adopted a crosssectional survey design and collected data from 191 construction companies selected through proportionate sampling. Structured questionnaires were used for data collection and the validity and reliability of the instruments were confirmed through expert review and Cronbach’s Alpha. Data were analyzed using descriptive statistics, correlation analysis, and hierarchical regression. Findings revealed that all three financial risk management components were positively associated with financial performance. Risk identification showed a significant but modest relationship with financial performance (r = .300, p < .01), while risk assessment and evaluation exhibited the strongest association (r = .591, p < .01). Risk management strategy also demonstrated a significant positive relationship (r = .428, p < .01). Hierarchical regression results further indicated that risk assessment and evaluation contributed the largest increase in explained variance (24.9 percent), followed by risk management strategy (7.1 percent), whereas the influence of risk identification diminished after additional predictors were introduced. Overall, the models explained 42.7 percent of the variation in financial performance. The study concludes that financial risk management significantly improves financial performance, particularly when firms invest in thorough assessment and evaluation of risks and implement structured mitigation strategies. It recommends that construction firms adopt comprehensive risk management frameworks, strengthen analytical capacities and integrate proactive financial planning tools to enhance profitability, reduce exposure to uncertainty and improve long-term sustainability.

Keywords

References

Adu-Gyamfi, G., Amoah, C., & Pretorius, J. H. C. (2024). Financial risk management practices and organisational performance in project-based industries. International Journal of Project Management, 42(2), 102–118. https://doi.org/10.1016/j.ijproman.2023.10.004
Adu-Gyamfi, G., Amoah, C., & Pretorius, J. H. C. (2024). Financial risk management practices and organisational performance in project-based industries. International Journal of Project Management, 42(2), 102–118. https://doi.org/10.1016/j.ijproman.2023.10.004
African Development Bank. (2023). African economic outlook 2023: Mobilizing private sector financing for climate and green growth in Africa. https://www.afdb.org
Aghimien, D. O., Aigbavboa, C., Oke, A., & Edwards, D. (2023). Risk management practices and performance outcomes in African construction firms. Journal of Engineering, Design and Technology, 21(4), 1052–1070. https://doi.org/10.1108/JEDT-01-2022-0017 DOI: https://doi.org/10.1007/978-3-031-35557-8_3
Aguome, N. M., Alaneme, G. U., Olaiya, B. C., & Lawan, M. M. (2024). Evaluation of lean construction practices for improving construction project delivery: Case study of Bushenyi District, Uganda. Cogent Engineering, 11(1), 2365902. https://doi.org/10.1080/23311916.2024.2365902 DOI: https://doi.org/10.1080/23311916.2024.2365902
Akomea-Frimpong, I., Andoh, C., & Ofosu-Hene, E. D. (2021). Risk management strategies in public–private partnership infrastructure projects and project success. Journal of Financial Management of Property and Construction, 26(3), 289–306. https://doi.org/10.1108/JFMPC-02-2020-0015
Al Janabi, M. A. M. (2021). Portfolio optimization under illiquidity and market constraints: Extensions of modern portfolio theory. Journal of Risk and Financial Management, 14(9), 421. https://doi.org/10.3390/jrfm14090421 DOI: https://doi.org/10.3390/jrfm14090421
Alaloul, W. S., Liew, M. S., Zawawi, N. A. W. A., & Mohammed, B. S. (2022). Construction risk management and project performance: A systematic review. Journal of Construction Engineering and Management, 148(3), 04021189. https://doi.org/10.1061/(ASCE)CO.1943-7862.0002236 DOI: https://doi.org/10.1061/(ASCE)CO.1943-7862.0002236
Albasyouni, A., Al-Zu’bi, Z., & Alqahtani, A. (2025). Probabilistic risk assessment models for financial exposure in construction projects. Journal of Construction Engineering and Management, 151(1), 04024091. https://doi.org/10.1061/(ASCE)CO.1943-7862.0002612
Alinaitwe, H., Apolot, R., & Tindiwensi, D. (2013). Investigation into the causes of delays and cost overruns in Uganda’s public construction projects. Journal of Construction in Developing Countries, 18(2), 33–47.
Alinaitwe, H., Apolot, R., & Tindiwensi, D. (2013). Investigation into the causes of delays and cost overruns in Uganda’s public construction projects. Journal of Construction in Developing Countries, 18(2), 33–47.
Antoniou, F. (2021). Delay risk assessment and mitigation in road construction projects: A case study approach. International Journal of Construction Management, 21(12), 1241–1253. https://doi.org/10.1080/15623599.2019.1707851
Anyango, M. (2022). Risk mitigation strategies and financial sustainability in emerging market enterprises. African Journal of Economic Review, 10(2), 75–91.
Bagenda, F., & Ndevu, Z. (2024). Financial management challenges and sustainability of construction firms in Uganda. International Journal of Construction Management, 24(5), 901–915. https://doi.org/10.1080/15623599.2023.2210456
Bahamid, R. A., & Doh, S. I. (2017). A review of the risk management process in construction projects in developing countries. IOP Conference Series: Materials Science and Engineering, 271, 012042. https://doi.org/10.1088/1757-899X/271/1/012042 DOI: https://doi.org/10.1088/1757-899X/271/1/012042
Bahamid, R. A., Zhang, H., & Ibrahim, A. H. (2022). Artificial intelligence applications for risk identification and management in construction projects. Automation in Construction, 138, 104240. https://doi.org/10.1016/j.autcon.2022.104240
Bahamid, R. A., Zhang, H., & Ibrahim, A. H. (2022). Risk management strategies and performance improvement in construction projects: A systematic review. Automation in Construction, 138, 104240. https://doi.org/10.1016/j.autcon.2022.104240
Berk, I., & Tutarl?, B. (2021). Financial risk management and firm performance: Evidence from portfolio diversification strategies. International Journal of Finance & Economics, 26(4), 5879–5896. https://doi.org/10.1002/ijfe.2083 DOI: https://doi.org/10.1002/ijfe.2083
Birthal, P. S., Hazrana, J., & Negi, D. S. (2021). Risk management strategies and resilience under economic shocks: Evidence from developing economies. Agricultural Economics Research Review, 34(1), 1–15. https://doi.org/10.5958/0974-0279.2021.00001.3
Boateng, P., Ameyaw, E. E., & Mensah, S. (2022). Risk evaluation practices and project performance in Ghanaian construction firms. Built Environment Project and Asset Management, 12(3), 417–432. https://doi.org/10.1108/BEPAM-02-2021-0038 DOI: https://doi.org/10.1108/BEPAM-02-2021-0038
Can Saglam, Y., Çankaya, S. Y., & Sezen, B. (2021). Proactive supply chain risk management and firm performance: A capability perspective. International Journal of Production Economics, 232, 107968. https://doi.org/10.1016/j.ijpe.2020.107968 DOI: https://doi.org/10.1016/j.ijpe.2020.107968
Chen, Y., Luo, H., & Zhang, X. (2022). BIM-enabled risk assessment and management in construction projects. Automation in Construction, 138, 104267. https://doi.org/10.1016/j.autcon.2022.104267 DOI: https://doi.org/10.1016/j.autcon.2022.104267
Cherono, J., & Nyang’au, A. (2024). Risk assessment practices and project financial performance in Nairobi City County construction projects. International Journal of Construction Management, 24(2), 301–315. https://doi.org/10.1080/15623599.2022.2126738
da Costa, F. (2024). Risk diversification and financial stability in volatile markets. Journal of Risk and Financial Management, 17(2), 85. https://doi.org/10.3390/jrfm17020085 DOI: https://doi.org/10.3390/jrfm17020085
De Vet, H. C. W., Mokkink, L. B., Mosmuller, D. G., & Terwee, C. B. (2017). Spearman–Brown prophecy formula and Cronbach’s alpha: Different faces of reliability and opportunities for strengthening instrument validity. Journal of Clinical Epidemiology, 85, 45–49. https://doi.org/10.1016/j.jclinepi.2017.01.013 DOI: https://doi.org/10.1016/j.jclinepi.2017.01.013
Deloitte. (2024). Global powers of construction 2024. Deloitte Insights. https://www2.deloitte.com
Dillman, D. A., Smyth, J. D., & Christian, L. M. (2014). Internet, phone, mail, and mixed-mode surveys: The tailored design method (4th ed.). Wiley. DOI: https://doi.org/10.1002/9781394260645
Draleti, M., Katoogo, F., & Asiimwe, G. (2024). Cost estimation risk assessment and financial performance of construction firms in Uganda. Journal of Financial Management of Property and Construction, 29(1), 56–73. https://doi.org/10.1108/JFMPC-06-2023-0049
Duo, H., Wang, X., & Zhao, Y. (2023). Risk transfer and financial hedging strategies in construction finance. Engineering, Construction and Architectural Management, 30(8), 2901–2918. https://doi.org/10.1108/ECAM-09-2021-0814
El Ghmari, A., & Ed-Dahhani, B. (2024). Dynamic portfolio management and financial risk adjustment under changing market conditions. Journal of Asset Management, 25(1), 44–59. https://doi.org/10.1057/s41260-023-00314-2
El-Sayegh, S. M., Manjikian, S., Ibrahim, A., Abouelyousr, A., & Jabbour, R. (2021). Risk identification and analysis in construction projects using artificial intelligence tools. Journal of Construction Engineering and Management, 147(8), 04021087. https://doi.org/10.1061/(ASCE)CO.1943-7862.0002117 DOI: https://doi.org/10.1061/(ASCE)CO.1943-7862.0002117
Etikan, I., & Bala, K. (2017). Sampling and sampling methods. Biometrics & Biostatistics International Journal, 5(6), 00149. https://doi.org/10.15406/bbij.2017.05.00149 DOI: https://doi.org/10.15406/bbij.2017.05.00149
Field, A. (2018). Discovering statistics using IBM SPSS Statistics (5th ed.). Sage Publications.
GlobalData. (2023). Global construction outlook to 2030. GlobalData Plc. https://www.globaldata.com
Hassan, A., Mahmood, A., & Ahmed, S. (2023). Circular economy risk assessment and financial implications in construction projects. Sustainability, 15(19), 14221. https://doi.org/10.3390/su151914221 DOI: https://doi.org/10.3390/su15107788
Hohenstein, N. O. (2022). Supply chain risk management in construction: Current trends and future research directions. International Journal of Operations & Production Management, 42(5), 635–658. https://doi.org/10.1108/IJOPM-03-2021-0185
Hovhannisyan, N., Sacks, R., & Rosenfeld, Y. (2023). Data-driven prediction of schedule risks in megaprojects using machine learning techniques. Automation in Construction, 148, 104772. https://doi.org/10.1016/j.autcon.2023.104772 DOI: https://doi.org/10.1016/j.autcon.2023.104772
Hwang, B. G., Shan, M., & Looi, K. Y. (2023). Financial risk factors affecting construction project performance: Evidence from international construction firms. Engineering, Construction and Architectural Management, 30(4), 1302–1320. https://doi.org/10.1108/ECAM-06-2021-0523
International Labour Organization. (2023). Employment by sector: Construction. ILOSTAT database. https://ilostat.ilo.org
Ji, Y., Luo, L., & Hu, X. (2022). Supply chain risk identification and mitigation in African construction projects. International Journal of Construction Management, 22(10), 1905–1917. https://doi.org/10.1080/15623599.2021.1938042
Koulinas, G., Demesouka, O., & Vavatsikos, A. (2023). Multi-criteria risk assessment frameworks for construction health and safety management. Safety Science, 165, 106179. https://doi.org/10.1016/j.ssci.2023.106179 DOI: https://doi.org/10.1016/j.ssci.2023.106179
Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607–610. https://doi.org/10.1177/001316447003000308 DOI: https://doi.org/10.1177/001316447003000308
Li, H., Shen, G. Q., & Wu, P. (2022). Intelligent safety risk assessment in infrastructure projects using entropy-based models. Automation in Construction, 135, 104111. https://doi.org/10.1016/j.autcon.2021.104111 DOI: https://doi.org/10.1016/j.autcon.2021.104111
Li, H., Shen, G. Q., & Wu, P. (2024). Risk assessment systems in industrialized construction: Impacts on operational and economic efficiency. Journal of Cleaner Production, 426, 139221. https://doi.org/10.1016/j.jclepro.2023.139221 DOI: https://doi.org/10.1016/j.jclepro.2023.139221
Lindquist, E., Mourdoukoutas, P., & Sharma, R. (2022). Risk–return trade-offs and portfolio decision-making in uncertain markets. Review of Behavioral Finance, 14(3), 335–352. https://doi.org/10.1108/RBF-10-2020-0261
Lukomnik, J., & Hawley, J. P. (2021). Modern portfolio theory and long-term value creation: Reassessing diversification and risk management. Financial Analysts Journal, 77(2), 54–69. https://doi.org/10.1080/0015198X.2021.1880132
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x DOI: https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
Martínez-Aires, M. D., López-Alonso, M., & Martínez-Rojas, M. (2024). Automated risk assessment systems and financial performance in construction safety management. Safety Science, 170, 106318. https://doi.org/10.1016/j.ssci.2023.106318 DOI: https://doi.org/10.1016/j.ssci.2023.106318
Medavaka, H. (2024). Strategic insurance and risk avoidance practices for firm financial stability. Journal of Risk Management in Emerging Economies, 6(1), 33–49.
Mugenda, O. M., & Mugenda, A. G. (2003). Research methods: Quantitative and qualitative approaches. ACTS Press.
Mutikanga, H., Muheirwe, F., & Tindiwensi, D. (2023). Competitiveness and financial sustainability of construction firms in East Africa. International Journal of Construction Management, 23(7), 1185–1198. https://doi.org/10.1080/15623599.2021.1996347
Mwelu, N., Rwelamila, P., & Chileshe, N. (2021). Project risk management practices and construction performance in developing countries. Built Environment Project and Asset Management, 11(3), 421–438. https://doi.org/10.1108/BEPAM-08-2020-0132
Nabawy, M., Elbeltagi, E., & Hosny, O. (2021). Risk identification and interdependency analysis in mega construction projects. Journal of Construction Engineering and Management, 147(5), 04021032. https://doi.org/10.1061/(ASCE)CO.1943-7862.0002047 DOI: https://doi.org/10.1061/(ASCE)CO.1943-7862.0002047
Next Move Strategy Consulting. (2025). Africa construction market is expected to reach USD 239.99 billion by 2030. https://www.nextmsc.com/news/africa-construction-market-is-expected-to-reach-usd-23999-billion-by-2030
Ogunnusi, M., Hamma-Adama, M., Salman, H., & Kouider, T. (2022). COVID-19 and the construction industry: Financial and operational risks and mitigation strategies. Journal of Engineering, Design and Technology, 20(1), 73–89. https://doi.org/10.1108/JEDT-05-2020-0199
Ogwang, T., & Vanclay, F. (2021). Financial and operational risks affecting infrastructure project delivery in developing economies. Built Environment Project and Asset Management, 11(4), 602–617. https://doi.org/10.1108/BEPAM-10-2020-0171
Okiye, E., Adebayo, O., & Ibrahim, A. (2022). Early risk identification models and project performance in construction projects. Built Environment Project and Asset Management, 12(4), 563–579. https://doi.org/10.1108/BEPAM-09-2021-0127
Oyekunle, O. (2024). Risk assessment frameworks and financial performance of Nigerian construction firms. International Journal of Construction Supply Chain Management, 14(1), 20–37.
Salamai, A. A., Hussain, M., & Ahmed, S. (2021). Dynamic voting classifier for supply chain risk identification in Industry 4.0 environments. Computers & Industrial Engineering, 158, 107377. https://doi.org/10.1016/j.cie.2021.107377
Sanni-Anibire, M. O., Mahmoud, A. S., & Hassanain, M. A. (2022). Financial risk management in construction projects: A review of practices and outcomes. Journal of Financial Management of Property and Construction, 27(2), 150–167. https://doi.org/10.1108/JFMPC-05-2021-0032
Seninde, M. (2020). Financial risk factors and performance of construction firms in Uganda. African Journal of Business Management, 14(6), 150–161. https://doi.org/10.5897/AJBM2020.8954
Setia, M. S. (2016). Methodology series module 3: Cross-sectional studies. Indian Journal of Dermatology, 61(3), 261–264. https://doi.org/10.4103/0019-5154.182410 DOI: https://doi.org/10.4103/0019-5154.182410
Settembre-Blundo, D., González-Sánchez, R., Medina-Salgado, S., & García-Muiña, F. E. (2021). Flexibility and resilience in risk management strategies for sustainable project performance. Sustainability, 13(4), 2096. https://doi.org/10.3390/su13042096 DOI: https://doi.org/10.3390/su13042096
Shibani, A., Hassan, D., & Al-Jibouri, S. (2024). Financial risk management and firm resilience in the construction industry. Sustainability, 16(1), 412. https://doi.org/10.3390/su16010412 DOI: https://doi.org/10.3390/su16010412
Srinivasan, R., Kannan, S., & Rajendran, C. (2022). Financial risk transfer mechanisms in infrastructure and construction projects. International Journal of Construction Management, 22(11), 2104–2117. https://doi.org/10.1080/15623599.2021.1966011
Taherdoost, H. (2017). Sampling methods in research methodology: How to choose a sampling technique for research. International Journal of Academic Research in Management, 5(2), 18–27. DOI: https://doi.org/10.2139/ssrn.3205035
Taroun, A. (2022). Risk management in construction projects: A review and future directions. International Journal of Construction Management, 22(8), 1397–1412. https://doi.org/10.1080/15623599.2020.1711490
Tessema, Y., Gebrehiwot, T., & Mekonen, A. (2022). Risk evaluation and financial performance among foreign contractors in Ethiopia. Journal of Construction in Developing Countries, 27(2), 89–105.
Toufaili, B. (2021). Strategic risk management and financial performance: Evidence from project-based firms. Journal of Risk Finance, 22(4), 401–417. https://doi.org/10.1108/JRF-10-2020-0191
Trading Economics. (2026). Uganda's GDP from construction. https://tradingeconomics.com/uganda/gdp-from-construction
Tutesigensi, A., Musinguzi, B., & Kyomugisha, J. (2021). Construction sector contribution to economic development in Uganda. African Journal of Economic Review, 9(1), 54–70.
Vääräniemi, P. (2021). Risk analytics and decision-making under uncertainty in investment projects. Journal of Asset Management, 22(6), 489–503. https://doi.org/10.1057/s41260-021-00235-9
Wang, X., & Cheng, Z. (2020). Cross-sectional studies: Strengths, weaknesses, and recommendations. Chest, 158(1), S65–S71. https://doi.org/10.1016/j.chest.2020.03.012 DOI: https://doi.org/10.1016/j.chest.2020.03.012
Wang, Y. (2024). Artificial intelligence applications in financial risk identification and decision support systems. Expert Systems with Applications, 238, 121987. https://doi.org/10.1016/j.eswa.2023.121987 DOI: https://doi.org/10.1016/j.eswa.2023.121987
World Bank. (2023). World development indicators. https://data.worldbank.org
Wu, C., & Lu, Y. (2022). Intelligent algorithm-based safety risk evaluation for large-scale construction projects. Journal of Cleaner Production, 365, 132742. https://doi.org/10.1016/j.jclepro.2022.132742 DOI: https://doi.org/10.1016/j.jclepro.2022.132742
Yao, X., Zhang, L., & Wang, J. (2024). Cloud model and variable-weight theory for multi-risk assessment in construction projects. Engineering, Construction and Architectural Management, 31(3), 965–982. https://doi.org/10.1108/ECAM-07-2022-0603
Yousri, M., Abdelhamid, T., & El-Sayegh, S. (2023). Financial risk identification frameworks and project performance in construction firms. Journal of Financial Management of Property and Construction, 28(2), 245–262. https://doi.org/10.1108/JFMPC-03-2022-0018 DOI: https://doi.org/10.1108/JFMPC-03-2022-0018

Downloads

Full-text downloads recorded for this article, by month.

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Kijjambu, F. N., Musiita, B., & Akampwera, S. (2026). Financial Risk Management and Financial Performance of Construction Companies in Greater Kampala Metropolitan Area. Journal of Economics and Behavioral Studies, 17(4(J), 13-24. https://doi.org/10.22610/jebs.v17i4(J).4808

Share this article

License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Financial Risk Management and Financial Performance of Construction Companies in Greater Kampala Metropolitan Area

Download the full text

Author

Abstract

Keywords

References

Downloads

How to Cite

Share this article

License

Keywords

Section

Published in

Published

Submissions