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Changes in operational efficiency and firm performance: a frontier analysis approach

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Changes in operational efficiency and firm performance : a frontier analysis approach. / Baik, Bok ; Chae, Joon ; Choi, Sunhwa; Farber , David .

In: Contemporary Accounting Research, Vol. 30, No. 3, 09.2013, p. 996-1026.

Research output: Contribution to journalJournal article

Harvard

Baik, B, Chae, J, Choi, S & Farber , D 2013, 'Changes in operational efficiency and firm performance: a frontier analysis approach', Contemporary Accounting Research, vol. 30, no. 3, pp. 996-1026. https://doi.org/10.1111/j.1911-3846.2012.01179.x

APA

Baik, B., Chae, J., Choi, S., & Farber , D. (2013). Changes in operational efficiency and firm performance: a frontier analysis approach. Contemporary Accounting Research, 30(3), 996-1026. https://doi.org/10.1111/j.1911-3846.2012.01179.x

Vancouver

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Baik, Bok ; Chae, Joon ; Choi, Sunhwa ; Farber , David . / Changes in operational efficiency and firm performance : a frontier analysis approach. In: Contemporary Accounting Research. 2013 ; Vol. 30, No. 3. pp. 996-1026.

Bibtex

@article{cc59042669eb4d10a4f02f7dde29e2a1,
title = "Changes in operational efficiency and firm performance: a frontier analysis approach",
abstract = "This study examines whether changes in operational efficiency predict firm performance. Using measures based on frontier analysis as our proxies for operational efficiency, we find that changes in efficiency are positively associated with changes in current and future earnings. We also find a positive relation between efficiency changes and contemporaneous stock returns, implying that investors find the information in efficiency changes to be value relevant. However, we also show that efficiency changes predict future stock returns, suggesting that market participants do not fully incorporate the predictive power of changes in efficiency for future changes in profitability. Finally, we show that our measures of operational efficiency changes are positively associated with analyst forecast revisions, but not associated with analyst forecast errors; these results suggest that analysts have a deep understanding of firms{\textquoteright} efficiency. Importantly, our results hold even after controlling for fundamental signals and changes in asset turnover, a commonly used proxy for operational efficiency. Overall, our study provides evidence suggesting that measures of operational efficiency derived from frontier analysis have predictive power incremental to simple financial ratios. Results from our study therefore have implications for fundamental analysis.",
keywords = "Operational efficiency, Data Envelopment Analysis , Stochastic Frontier Analysis , Fundamental Analysis",
author = "Bok Baik and Joon Chae and Sunhwa Choi and David Farber",
note = "This is a post-print of an article published in Contemporary Accounting Research, 30 (3), 2013. (c) Wiley.",
year = "2013",
month = sep
doi = "10.1111/j.1911-3846.2012.01179.x",
language = "English",
volume = "30",
pages = "996--1026",
journal = "Contemporary Accounting Research",
issn = "0823-9150",
publisher = "Wiley-Blackwell",
number = "3",

}

RIS

TY - JOUR

T1 - Changes in operational efficiency and firm performance

T2 - a frontier analysis approach

AU - Baik, Bok

AU - Chae, Joon

AU - Choi, Sunhwa

AU - Farber , David

N1 - This is a post-print of an article published in Contemporary Accounting Research, 30 (3), 2013. (c) Wiley.

PY - 2013/9

Y1 - 2013/9

N2 - This study examines whether changes in operational efficiency predict firm performance. Using measures based on frontier analysis as our proxies for operational efficiency, we find that changes in efficiency are positively associated with changes in current and future earnings. We also find a positive relation between efficiency changes and contemporaneous stock returns, implying that investors find the information in efficiency changes to be value relevant. However, we also show that efficiency changes predict future stock returns, suggesting that market participants do not fully incorporate the predictive power of changes in efficiency for future changes in profitability. Finally, we show that our measures of operational efficiency changes are positively associated with analyst forecast revisions, but not associated with analyst forecast errors; these results suggest that analysts have a deep understanding of firms’ efficiency. Importantly, our results hold even after controlling for fundamental signals and changes in asset turnover, a commonly used proxy for operational efficiency. Overall, our study provides evidence suggesting that measures of operational efficiency derived from frontier analysis have predictive power incremental to simple financial ratios. Results from our study therefore have implications for fundamental analysis.

AB - This study examines whether changes in operational efficiency predict firm performance. Using measures based on frontier analysis as our proxies for operational efficiency, we find that changes in efficiency are positively associated with changes in current and future earnings. We also find a positive relation between efficiency changes and contemporaneous stock returns, implying that investors find the information in efficiency changes to be value relevant. However, we also show that efficiency changes predict future stock returns, suggesting that market participants do not fully incorporate the predictive power of changes in efficiency for future changes in profitability. Finally, we show that our measures of operational efficiency changes are positively associated with analyst forecast revisions, but not associated with analyst forecast errors; these results suggest that analysts have a deep understanding of firms’ efficiency. Importantly, our results hold even after controlling for fundamental signals and changes in asset turnover, a commonly used proxy for operational efficiency. Overall, our study provides evidence suggesting that measures of operational efficiency derived from frontier analysis have predictive power incremental to simple financial ratios. Results from our study therefore have implications for fundamental analysis.

KW - Operational efficiency

KW - Data Envelopment Analysis

KW - Stochastic Frontier Analysis

KW - Fundamental Analysis

U2 - 10.1111/j.1911-3846.2012.01179.x

DO - 10.1111/j.1911-3846.2012.01179.x

M3 - Journal article

VL - 30

SP - 996

EP - 1026

JO - Contemporary Accounting Research

JF - Contemporary Accounting Research

SN - 0823-9150

IS - 3

ER -