Efficiency of Listed Manufacturing Firms in Dar es Salaam Stock Exchange: Data Envelopment Analysis Model.

Abstract

The aim of this paper is to measure the efficiency of listed manufacturing companies in Tanzania, the study covers the year 2010 to 2014. The study employed a non-parametric approach, known as Data Envelopment Analysis (DEA) to measure efficiency under input oriented with constant returns to scale (CRS) and variable returns to scale assumptions (VRS). The study also employs Pearson correlation to test positive correlation between inputs and outputs variables. Data was extracted from respective annual financial reports of the manufacturing firms listed at Dar es Salaam stock exchange (DSE) before the year 2010. Three critical inputs variables (raw materials, staff expenses as well as plant and machinery) and two output variables (net sales and earnings after tax) were employed to measure relative efficiency of 6 listed manufacturing. Findings revealed that Tanzania Cigarette Company (TCC) was performing relatively better in terms of pure technical efficiency (PTE) and scale efficiency (SE) with an average efficiency score of 98% and 99 % respectively. While, Tanzania Oxygen Limited (TOL) experienced difficulties in terms of PTE and SE with an average efficiency score of 72% and 45% respectively. Results of average annual performance in the years 2010, 2011 and 2012 were better compared to the remaining years. Result for returns to scale indicates that there was no firm which consistently experienced increasing return to scale (IRS) throughout the period under review, which implies that none of the firms has the room to enjoy economies of scale throughout the period under review. Findings have significant bearing on policy issues relating to size of manufacturing firms in the country. Firms indicating decreasing returns to scale (DRS) should revisit their size versus production scale so as to improve the scale efficiency. The findings from this study can also enrich the ongoing agenda of promoting industrialization in Tanzania particularly, on issues relating to size and production scale (optimality).