Financial efficiency analysis: Empirical evidence from the emerging stock market

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Abstract

The purpose of this research is to analyze the financial effectiveness of listed companies in the Indian stock market during the period 2016–2021 to identify which organizations have achieved a combination of technologically viable factors and products that maximize profit, taking into account the limitation of inputs. The methodology used is the data envelopment analysis (DEA), a non parametric procedure that uses the linear programming technique for the evaluation of the relative efficiency of a set of productive units. The results obtained through the DEA model indicate that during the period 2016–2021 there were on average 17 efficient units per year (under the BCC model), representing 26.82% of the total number of listed companies in the Indian stock market; of these companies, six were efficient during all the years of the period analyzed. Moreover, the study concludes that an operational measure such as efficiency is established as an indicator of support for investment decision-making, complementing the traditional indicators of financial analysis. It is expected that this work will open the way to new research in which the DEA methodology is used to evaluate financial efficiency in other stock markets and the consideration of two-stage network DEA models can be considered.

Keywords: Stock Market, Efficiency Analysis, Inputs, Productivity, Outputs

Authors’ individual contribution: Conceptualization — S.R.A. and I.A.K.; Methodology — S.K.; Formal Analysis — N.A.M.S.; Investigation — S.R.A.; Writing — Original Draft — I.A.K.; Writing — Review & Editing — N.A.M.S.; Supervision — S.K.; Project Administration — S.K. and N.A.M.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: Dr. Syed Raziuddin Ahmad would like to thank Arab Open University, Saudi Arabia, for supporting this research paper.

JEL Classification: C02, C14, G10

Received: 11.09.2022
Accepted: 07.11.2022
Published online: 10.11.2022

How to cite this paper: Ahmad, S. R., Khan, S., Senan, N. A. M., & Khan, I. A. (2022). Financial efficiency analysis: Empirical evidence from the emerging stock market. Corporate Law & Governance Review, 4(2), 27–35. https://doi.org/10.22495/clgrv4i2p3