Efficiency Analysis of Global Steel Companies

Abstract

This study analyzes efficiency of global steel companies for the period 1997-2008. I employ Data Envelopment Analysis (DEA) to estimate the relative efficiency of global steel companies in using their labor, materials and capital resources to generate sales. Based on a panel dataset for global steel companies for the period 1997-2008, I find that the means (medians) of aggregate, technical, and scale efficiency scores were 0.4954 (0.4619), 0.5803 (0.5420), and 0.8656 (0.9385) respectively. Average aggregate efficiency increased from 1998 until 2002 before trending down. Average technical efficiency increased from 1998 until 2003 before trending down. Therefore, it is apparent that the aggregate efficiency and technical efficiency move together. In contrast, average scale efficiency decreased from 1997 until 2008, which indicated a steadily downward trend from the first year in the sample period. Furthermore, average scale efficiency was greater than average technical efficiency for each year throughout the entire sample period, suggesting that the technical factor was a more important source of inefficiency than the scale factor in each year during the entire sample period. That is, there existed a higher level of technical inefficiency compared with scale inefficiency, indicating that there was more room for improvement in technical efficiency.