Does Cost Efficiency Lead to Better Financial Performance? A Study on Taiwan International Tourist Hotels

Abstract

ABSTRACT The purpose of this study is to investigate the link between cost efficiency and financial performance as it pertains to the hotel industry. This study employs the data envelopment analysis approach to estimate cost efficiency and uses three traditional financial indicators—the ratio of net operating profit before taxes, the ratio of earnings before taxes, and return on assets before taxes—to measure financial performance. Data were generated from 68 international tourist hotels in Taiwan from 1997 to 2006. The major finding indicates that cost efficiency is insignificantly associated with the financial performance regardless of the financial performance variable used. The implications of the findings and the limitations of the study are discussed, and future research directions are addressed.