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Sustainability 2015, 7(12), 15982-15998; doi:10.3390/su71215796

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

Department of Architectural Engineering, Hanynag University, 222, Wangsipri-ro, Sungdong-gu, Seoul 133-791, Korea
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Academic Editors: Isabel Ramos and Rui Dinis Sousa
Received: 1 October 2015 / Revised: 15 November 2015 / Accepted: 24 November 2015 / Published: 2 December 2015
(This article belongs to the Special Issue Resilient Businesses: Assessment, Approaches and Technology)
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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. View Full-Text
Keywords: firm’s growth; profitability; construction companies; long-term recession; Korea firm’s growth; profitability; construction companies; long-term recession; Korea
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Yoo, S.; Kim, J. The Dynamic Relationship between Growth and Profitability under Long-Term Recession: The Case of Korean Construction Companies. Sustainability 2015, 7, 15982-15998.

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