Open AccessA Model To Estimate Firms Accounting-Based Performance: A Data Envelopment Approach
Author(s) -
Merwe Oberholzer
Publication year - 2014
Publication title -
the international business and economic research journal/the international business and economics research journal
Language(s) - English
Resource type - Journals
eISSN - 2157-9393
pISSN - 1535-0754
DOI - 10.19030/iber.v13i6.8921
Subject(s) - earnings before interest, taxes, depreciation, and amortization , weighted average cost of capital , data envelopment analysis , econometrics , economics , leverage (statistics) , amortization , proxy (statistics) , earnings , accounting , equity (law) , depreciation (economics) , microeconomics , profit (economics) , loan , finance , mathematics , statistics , individual capital , capital formation , financial capital , political science , law
The objective of the study was to follow a logical inductive approach to develop a Data Envelopment Analysis (DEA) model to estimate the relative technical efficiency of firms. The Du Pont analysis theory as conceptual framework was applied using primarily readily available accounting line-items as input and output variables. From an interpretive epistemological paradigm and analytical reasoning, a new DEA model was developed with Weighted Average Cost of Capital (WACC), leverage and expenditure as input variables and revenue, net profit and Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) as output variables. The originality of this study is that this is the first effort to employ accounting data, based on the Du Pont analysis in a DEA model. All the input and output variables in the model were already used individually or in combinations by previous studies, except for WACC. The study argues that WACC should be employed as a proxy for the accounting line-items, equity and liabilities, since lowering WACC implies that firms are moving closer to their optimal capital structures.