Size and Operational Performance of Manufacturing Companies in Pakistan Using Data Envelopment Analysis

Abstract

The purpose of this paper is to employ Data Envelopment Analysis to evaluate the efficiency of 49 manufacturing companies in Pakistan over the period of 2008 to 2010. Three inputs variables (raw materials, staff expenses and plant and machinery) and two output variables are used (net sale and earnings after tax).This study uses Pearson correlation to indicate positive correlation between input and output variables and employed input approach of DEA model. Data is gathered from OSIRIS database and these companies are categorized under large-sized (assets above USD100 million), medium-sized (assets between USD30 million to USD100 million) and small-sized (asset under USD30 million). The results indicate that small-sized company has the highest relative efficiency compared to large and medium-sized company. In addition, the study finds that 2 large-sized companies, 3 medium-sized companies and 5 small-sized companies are operating under the most productive scale size (MPSS) throughout the three-year period.

Keywords: Data Envelopment Analysis (DEA), operational performance manufacturing companies, Pakistan