Performance Measurement for Accountability in Corporate Governance: A Data Envelopment Analysis Approach

21 Pages Posted: 8 Aug 2008 Last revised: 4 Jan 2019

See all articles by Ehsan H. Feroz

Ehsan H. Feroz

University of Washington, Milgard School of Business-Accounting ; University of Illinois at Urbana-Champaign; Government of the United States of America - US GAO Advisory Council; University of Minnesota, Labovitz School of Business-Department of Accounting; University of Minnesota, Carlson School of Management-Department of Accounting; American Accounting Association

Sanjay Goel

University of Minnesota - Duluth

Raymond L. Raab

University of Minnesota, Duluth - Labovitz School of Business and Economics (LSBE)

Date Written: August 7, 2008

Abstract

This paper was inspired by the Coase (1937) theory of the firm. The purpose of this paper is to show the applicability of data envelopment analysis (DEA) in arriving at an unbiased account of relative performance of a set of companies, using the pharmaceutical industry as an example. A DEA based income efficiency measure of business performance for the pharmaceutical industry is computed. The pharmaceutical industry, which includes many multinational corporations with complex governance problems and strategies that allowed the efficiency to change over time, over ten recent years, are analyzed. The analyses indicate that inclines and declines in DEA efficiency rankings are related to the strategic choices made by the upper management. This approach may be ideal to evaluate strategic managers (CEOs, general managers, and presidents) by the board of directors since it relates multiple performance indices to a meta measure of performance. Another group of beneficiaries include the sector analysts. Our approach adds a new dimension to sector analysis, to compare specific industries and identify the relative performance of firms on multiple performance indices.

Keywords: Coase theory of the firm, Corporate governance, Performance measurement, Strategic management, Sector analysis, Pharmaceutical, DEA, Political Economy

JEL Classification: C44, C61, C67, D57, D61, G29, G30, G34, K32, L60, M40, M41, P16

Suggested Citation

Feroz, Ehsan H. and Goel, Sanjay and Raab, Raymond L., Performance Measurement for Accountability in Corporate Governance: A Data Envelopment Analysis Approach (August 7, 2008). Review of Accounting and Finance, Vol. 7, No. 2, pp. 121-130, 2008 . Available at SSRN: https://ssrn.com/abstract=1211902

Ehsan H. Feroz (Contact Author)

University of Washington, Milgard School of Business-Accounting ( email )

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University of Illinois at Urbana-Champaign ( email )

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Government of the United States of America - US GAO Advisory Council ( email )

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University of Minnesota, Carlson School of Management-Department of Accounting ( email )

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American Accounting Association ( email )

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Sanjay Goel

University of Minnesota - Duluth

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Duluth, MN 55812
United States

Raymond L. Raab

University of Minnesota, Duluth - Labovitz School of Business and Economics (LSBE) ( email )

412 Library Drive
Duluth, MN 55812-3029
United States

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