Estimating efficiency performance of decision-making unit by using SFA and DEA Method

A cross-sectional data approach

Roslah Arsad, Zaidi Isa, Siti Nabilah Mohd Shaari

Research output: Contribution to journalArticle

Abstract

In this paper, a cross-sectional samples data of 115 Malaysian stocks have been employed to compare both Data Envelopment Analysis (DEA) method and Stochastic Frontier Analysis (SFA) method. These approaches are used to provide a review of frontier conceptual measurement, strength and limitation of the parametric and non-parametric models. Stochastic frontier production function of Cobb-Douglas type was utilized for the estimation. The function was estimated using the maximum likelihood estimation technique. Two models in DEA, DEA-CCR and DEA-BCC are applied in this study and the ranking correlation between SFA method and both models DEA are determined by using the Spearman rank method. The result revealed using SFA, the mean technical efficiency of sample consumer product companies is 37.5% and implies that companies operating at means level of technical efficiency could produce 80.1% more out-put for given level of inputs if they become technically more efficient. From empirical results of the SFA method, we determined that the deviations from the efficient frontiers of production functions are largely attributed to inefficiency effects (technical inefficiency). Finally, the findings also showed that the difference in ranking stocks performance using DEA-CCR, DEA-BCC and SFA methods. The main contribution of the paper is showing the comparative performance based on both model, DEA and SFA method using financial ratio.

Original languageEnglish
Pages (from-to)25-31
Number of pages7
JournalInternational Journal of Engineering and Technology(UAE)
Volume7
Issue number4
DOIs
Publication statusPublished - 1 Jan 2018

Fingerprint

Data envelopment analysis
Decision Making
Decision making
Consumer products
Maximum likelihood estimation
Industry

Keywords

  • Efficiency
  • Frontier analysis
  • Non-parametric
  • Parametric
  • Productivity

ASJC Scopus subject areas

  • Biotechnology
  • Computer Science (miscellaneous)
  • Environmental Engineering
  • Chemical Engineering(all)
  • Engineering(all)
  • Hardware and Architecture

Cite this

Estimating efficiency performance of decision-making unit by using SFA and DEA Method : A cross-sectional data approach. / Arsad, Roslah; Isa, Zaidi; Shaari, Siti Nabilah Mohd.

In: International Journal of Engineering and Technology(UAE), Vol. 7, No. 4, 01.01.2018, p. 25-31.

Research output: Contribution to journalArticle

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