Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea
This study examines the dynamic relationship between changes in construction contract amounts across the diversified business areas within the portfolios of Korean construction firms and their overall business performance using a vector error correction model. It aims to provide a detailed evaluatio...
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| Format: | Article |
| Language: | English |
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MDPI AG
2025-04-01
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| Series: | Buildings |
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| Online Access: | https://www.mdpi.com/2075-5309/15/8/1238 |
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| author | Sungho Kwak Sanghyo Lee Kyonghoon Kim Jaejun Kim |
| author_facet | Sungho Kwak Sanghyo Lee Kyonghoon Kim Jaejun Kim |
| author_sort | Sungho Kwak |
| collection | DOAJ |
| description | This study examines the dynamic relationship between changes in construction contract amounts across the diversified business areas within the portfolios of Korean construction firms and their overall business performance using a vector error correction model. It aims to provide a detailed evaluation of the effectiveness and characteristics of diversification strategies in the construction industry. This analysis employs key variables, including the debt ratio, return on total assets, diversification index, and construction contract amounts in domestic and overseas building, civil engineering, and plant construction projects. Two distinct models are used: Model A investigates the relationship between the debt ratio and diversification while Model B explores the relationship between the return on total assets and diversification. The time series data for the analysis spans from Q1 2002 to Q4 2021 on a quarterly basis. The results indicate that Korean construction firms have actively expanded into overseas markets to enhance their financial soundness. However, while such diversification efforts facilitate short-term capital acquisition, they have a negative impact on long-term business performance. When technological capabilities remain constant, lowering prices to increase contract volume may ultimately erode long-term profitability. Therefore, rather than focusing solely on expanding contract volumes through diversification, it is essential to first objectively assess the strengths of each business sector and focus on strengthening core competencies and expertise before pursuing further diversification. |
| format | Article |
| id | doaj-art-8413d9656eec4df0a2085c26cfd77e2e |
| institution | OA Journals |
| issn | 2075-5309 |
| language | English |
| publishDate | 2025-04-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Buildings |
| spelling | doaj-art-8413d9656eec4df0a2085c26cfd77e2e2025-08-20T02:17:24ZengMDPI AGBuildings2075-53092025-04-01158123810.3390/buildings15081238Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of KoreaSungho Kwak0Sanghyo Lee1Kyonghoon Kim2Jaejun Kim3Department of Architectural Engineering, Hanyang University, 222, Wangsipri-ro, Sungdong-gu, Seoul 04763, Republic of KoreaDepartment of Smart Convergence Engineering, Hanyang University ERICA, Ansan 15588, Republic of KoreaPost-Construction Evaluation and Management Center, Department of Construction Policy Research, Korea Institute of Civil Engineering and Building Technology, Goyang 10223, Republic of KoreaDepartment of Architectural Engineering, Hanyang University, 222, Wangsipri-ro, Sungdong-gu, Seoul 04763, Republic of KoreaThis study examines the dynamic relationship between changes in construction contract amounts across the diversified business areas within the portfolios of Korean construction firms and their overall business performance using a vector error correction model. It aims to provide a detailed evaluation of the effectiveness and characteristics of diversification strategies in the construction industry. This analysis employs key variables, including the debt ratio, return on total assets, diversification index, and construction contract amounts in domestic and overseas building, civil engineering, and plant construction projects. Two distinct models are used: Model A investigates the relationship between the debt ratio and diversification while Model B explores the relationship between the return on total assets and diversification. The time series data for the analysis spans from Q1 2002 to Q4 2021 on a quarterly basis. The results indicate that Korean construction firms have actively expanded into overseas markets to enhance their financial soundness. However, while such diversification efforts facilitate short-term capital acquisition, they have a negative impact on long-term business performance. When technological capabilities remain constant, lowering prices to increase contract volume may ultimately erode long-term profitability. Therefore, rather than focusing solely on expanding contract volumes through diversification, it is essential to first objectively assess the strengths of each business sector and focus on strengthening core competencies and expertise before pursuing further diversification.https://www.mdpi.com/2075-5309/15/8/1238business diversificationconstruction firmsKorean construction industryfinancial performancevector error correction modelconstruction contract amounts |
| spellingShingle | Sungho Kwak Sanghyo Lee Kyonghoon Kim Jaejun Kim Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea Buildings business diversification construction firms Korean construction industry financial performance vector error correction model construction contract amounts |
| title | Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea |
| title_full | Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea |
| title_fullStr | Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea |
| title_full_unstemmed | Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea |
| title_short | Impact of Business Diversification on the Business Performance of Construction Firms in the Republic of Korea |
| title_sort | impact of business diversification on the business performance of construction firms in the republic of korea |
| topic | business diversification construction firms Korean construction industry financial performance vector error correction model construction contract amounts |
| url | https://www.mdpi.com/2075-5309/15/8/1238 |
| work_keys_str_mv | AT sunghokwak impactofbusinessdiversificationonthebusinessperformanceofconstructionfirmsintherepublicofkorea AT sanghyolee impactofbusinessdiversificationonthebusinessperformanceofconstructionfirmsintherepublicofkorea AT kyonghoonkim impactofbusinessdiversificationonthebusinessperformanceofconstructionfirmsintherepublicofkorea AT jaejunkim impactofbusinessdiversificationonthebusinessperformanceofconstructionfirmsintherepublicofkorea |