Performance measurement of composite textile industries in Pakistan using data envelopment analysis

This study aims at evaluating and measuring the relative technical efficiency of Pakistan’s textile industry vertically integrated composite firms using Data Envelopment Analysis under the assumption of variable returns to scale (VRS). The data used for this study is collected from the firm’s official website and the Karachi Stock Exchange. This output oriented study covers 29 firms for the period of 2014-2016 employing three homogeneous inputs and outputs. Current asset, production cost and administration cost of the firms are used as inputs elements, gross profit, and total sales and net income compromised the output constituent. In addition to evaluating technical efficiency, this paper examines variations among efficient and inefficient firms. Our findings indicate that, only 17% percent of the firms are scale efficient while 35% of the firms are technically efficient with a mean value of 0.731. Our analysis also indicates an average of 0.572 technical efficiency from constant returns to scale DEA, an average of 0.731 of technical efficiency from variable returns to scale DEA, and an average of 0.805 Scale efficiency. Accordingly, this study confirmed the existence of scale and technical efficiency difference between the firms of the same industry. Though the determinant and factors of efficiency difference among firms is not examined in this study, we recommend that inefficient firms need to enhance their scale size and perk up their managerial practices to enhance their overall efficiency