The Impact of Multinational Business Diversification on the Financial Sustainability of Construction Firms in Korea

Sanghyo Lee, Yonghan Ahn and Sungwoo Shin
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Sanghyo Lee: Innovative Durable Building and Infrastructure Research Center, Hanyang University, 55 Hanyangdaehak-ro, Sangrok-gu, Ansan-si 426-791, Korea
Yonghan Ahn: School of Architecture and Architectural Engineering, Hanyang University, 55 Hanyangdaehak-ro, Sangrok-gu, Ansan-si 426-791, Korea
Sungwoo Shin: School of Architecture and Architectural Engineering, Hanyang University, 55 Hanyangdaehak-ro, Sangrok-gu, Ansan-si 426-791, Korea

Sustainability, 2016, vol. 8, issue 10, 1-14

Abstract: This study investigated empirically whether multinational business diversification by Korean construction firms contributes to their financial sustainability using the vector error correction model. In this study, the current ratio and the debt ratio were used as proxy variables for financial sustainability. International construction orders and domestic construction orders were used as proxy variables for multinational business diversification for the analysis. Of the models used for analysis in this study, Model A used the current ratio and international and domestic construction orders, and Model B used the debt ratio and international and domestic construction orders. The time-series data utilized consisted of the quarterly data from Q1 of 2001 to Q4 of 2015. The results of the analysis imply that an increase in international construction orders undermines the financial viability of construction firms because of a decrease in the current ratio and an increase in the debt ratio. The results also show that the scrutinized analysis of profitability was insufficient because overseas project orders were not pursued based on a long-term business strategy but on short-term turnover. Therefore, Korean construction firms should recognize the overseas construction market as an independent market, not an alternative to the domestic market, and establish a long-term business strategy to enter overseas markets effectively to secure financial sustainability.

Keywords: multinational business diversification; financial sustainability; current ratio; debt ratio; vector error correction model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:8:y:2016:i:10:p:997-:d:79885

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