Applying data envelopment analysis to evaluate firm performance

Abstract

The purpose of this study is to evaluate the performance of Turkish firms listed in corporate governance index using some financial variables and corporate governance. The research involves 31 nonfinancial firms listed in Borsa Istanbul (BIST), and the data are obtained from the firms’ financial statements in 2015. For this purpose, the firms’ performance was evaluated by conducting the Data Envelopment Analysis (DEA), which is a Multicriteria Decision-Making (MCDM) method. In this study, the analysis was conducted in two steps. In the first step, the DEA model was built using total assets and total equity as inputs with sales and profit as outputs. In the second step, the same DEA model was repeated by adding corporate governance rating as a new input only. Then, it was observed that the efficiency of the firms increased significantly in almost every aspect. This increase indicates that it was required to use corporate governance rating to get an appropriate firm performance as well as financial values.