Calculating Efficiency with Financial Accounting Data: Data Envelopment Analysis for Accounting Researchers

Abstract

Recent years have seen a preponderance of accounting research using data envelopment analysis (DEA) to measure efficiency. In this study, I examine the calculation of DEA efficiency, with a focus on large panel datasets of financial accounting information. Using simulation and archival data, I examine four methodological considerations that arise when calculating efficiency with panel data: calculation group size, measuring efficiency over multiple time periods, the choice of calculation group classification, and using subsets of efficiency values calculated from larger datasets. I find that each of these potentially influences the efficiency generated by DEA. Based on these methodological issues, I provide evidence and prescriptions to aid researchers using DEA in designing studies.

Keywords: Data Envelopment Analysis, Financial Accounting, DEA

JEL Classification: C61, C67, M41