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The Dynamic Relationship between Growth and Profitability under Long-Term Recession: The Case of Korean Construction Companies

Title
The Dynamic Relationship between Growth and Profitability under Long-Term Recession: The Case of Korean Construction Companies
Author
김재준
Keywords
firm's growth; profitability; construction companies; long-term recession; Korea
Issue Date
2015-12
Publisher
MDPI AG
Citation
SUSTAINABILITY, v. 7, NO 12, Page. 15982-15998
Abstract
We conducted an empirical analysis of the dynamic relationship between growth and profitability for small- and medium-sized construction companies that faced long-term economic stagnation in Korea. The period of the analysis spanned 2000 to 2014, and the full period was divided into two halves: before the 2008 global financial crisis and after it. Our empirical model was based on the system generalized method of moments model, and 264 construction companies were used as the study sample. The results of the empirical analysis are as follows. (1) A profitability-driven management strategy limits company growth, thus prolonging the economic downturn; (2) When the macroeconomic environment is relatively stable, high growth in the previous period fosters profitability in the current period. This implies that the phenomenon of dynamic increasing returns is present in the Korean construction industry, and learning through growth enhances productivity and profitability. Consequentially, a strategy oriented towards short-term profitability (popular with small- and medium-sized Korean construction companies) makes the corporate management less resilient, causing them to select de-growth during the long-term stagnation by decreasing their scale of operations. Accordingly, it is important for companies to maintain the balance between growth and profitability.
URI
http://www.mdpi.com/2071-1050/7/12/15796http://hdl.handle.net/20.500.11754/30056
ISSN
2071-1050
DOI
10.3390/su71215796
Appears in Collections:
COLLEGE OF ENGINEERING[S](공과대학) > ARCHITECTURAL ENGINEERING(건축공학부) > Articles
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