Incorporating financial ratios in DEA - an application to goat farming data. A critical examination

Abstract

Goat farming in Greece, is practiced in disadvantaged regions that cannot be otherwise valorised. For these areas, goat farming is one of the main economics activities. Despite the significance of the sector, goat farming shows low efficiency and competitiveness and this is due to the high production costs. Most farms in Greece operate under increasing scale. The goal of this paper is to present how corporate performance can be measured - using data envelopment analysis (DEA) method - with financial indexes. DEA is a useful technique that measures the efficiency. However, the lack of the ability to attend to ratio measures is an ongoing challenge in DEA. In this paper there is a combination of DEA and financial ratios and that has many advantages. It is implemented by a specific procedure that is called directional distance function, and the main advantage of this method, belonging to the class of non-radial approach, is the flexibility.