The economic crisis and efficiency change: evidence from the Korean construction industry

Abstract

This article gauges and analyses different types of efficiency in the Korean construction industry for the period 1996 to 2000, which includes the country's economic crisis. We also identify several important factors of the efficiency change and provide some managerial implications for the reason why most Korean construction firms had failed to maintain or enhance efficiency during this period. The results show that efficiency measures decreased significantly during the sample period and that there are large differences over the period before and after the economic crisis. Unlike many other industries, the low level of cost efficiency of the construction industry is mainly due to allocative inefficiency (inappropriate mix of input factors) rather than technical inefficiency. The low level of allocative efficiency, together with the strong relationship between institutional investors and efficiency, implies that the agency problem between managers and owners had prevailed in the Korean construction industry, and that construction firms could increase efficiency by minimizing agency costs. The study also implies that firms having failed in decreasing the leverage ratio, disposing unproductive assets and increasing the receivables overdue turnover could not avoid the efficiency decrease.

Measuring Inefficiency for Specific Inputs Using Data Envelopment Analysis: Evidence from Construction Industry in Spain and Portugal

“…11 Such input-output configuration is consistent with previous studies of efficiency in the construction industry (You and Zi 2007;Kapelko and Oude Lansink 2015a). The book value of fixed assets is a proxy for capital, and is measured in millions of euros at constant prices from 2002, which were obtained by deflating the fixed assets by the industrial price index for capital goods.…”

“…In this case, depreciation reflects the consumption of fixed capital, which is a negative change in the value of the fixed assets used in production. This proxy is extensively applied in many studies of the construction industry (see, e.g., Xue et al 2008;You and Zi 2007;Kapelko and Oude Lansink 2015a). Labor was measured by employee costs, expressed in millions of euros at 2002 constant prices and obtained using the price index for labor costs for the construction industry.…”

“…China (Xue et al 2008;Zheng et al 2011), and South Korea (You and Zi 2007). Given that the construction sector plays a central role in the Spanish and Portuguese economies and has been severely impacted by the 2008 economic crisis, the study of input-specific inefficiency of construction companies in these countries can help firms define strategies for survival during the crisis and long-run efficiency improvements.…”

From the Boom to the Collapse: a Technical Efficiency Analysis of the Spanish Construction Industry during the Financial Crisis

“…There are very few studies analysing the efficiency of the construction sector and, to the best of our knowledge, there is just one, You and Zi (2007), approximating the effect of an economic crisis on the efficiency of the construction industry. Globally, country studies focused on the whole construction sector, report a wide range of efficiency levels from a low of around 50% for Canadian firms (Pilateris and McCabe, 2003), approximately 60% for Portuguese firms (Horta, Camanho and Moreira da Costa, 2012), to higher estimates of 83% for Norwegian firms (Edvardsen, 2004), 84% for Chinese firms (Zheng, Chau and Hui, 2011) and 93% for Greek firms (Tsolas, 2011).…”

Productivity and Efficiency in the Development of the Swedish Construction Sector

“…The greatest challenge was unforeseen site conditions and these had a direct impact on productivity. The seemingly low level of cost efficiency of the construction sector is yet another factor and is considered to be largely attributable to allocative inefficiency, i.e., an inappropriate mix of input factors, rather than technical inefficiency [15].…”