Measuring the technical efficiency of the listed IT companies: Evidence from Bangladesh
DOI:
https://doi.org/10.20525/ijrbs.v11i6.1979Keywords:
Technical Efficiency, Information Technology, Data Envelopment Analysis, BangladeshAbstract
This study aimed to measure the technical efficiency of information technology (IT) companies listed on the Dhaka Stock Exchange (DSE) in Bangladesh. It included ten listed IT companies for the period 2016–2020. The input-oriented Data Envelopment Analysis (DEA) approach was used to measure technical efficiency. This study used two inputs, such as fixed assets and capital expenditure, and three outputs, such as return on equity, return on assets, and total income, to measure technical efficiency. All the required data were collected from publicly available annual reports, the sample companies’ websites, and the website of DSE. The study found that Bangladeshi-listed IT companies were not adequately technically efficient, with an average efficiency score of 56.6 percent, requiring a 43.6 percent improvement in efficiency during the period 2016–2020. This inefficiency was due primarily to pure technical inefficiency followed by scale inefficiency. The findings of the study are expected to provide important and useful information to the Bangladesh Association of Software and Information Services (BASIS), the Bangladesh Computer Council (BCC), the ICT Division of the Bangladesh government, and the sample companies.
Downloads
References
Abduh, M., Hasan, S. M., & Pananjung, A. G. (2013). Efficiency and performance of Islamic Banks in Bangladesh. Journal of Islamic Banking and Finance, April-July, 94-106.
Abel, S., & Bara, A. (2017). Decomposition of the technical efficiency: Pure technical and scale efficiency of the financial system. Economic Research Southern Africa ERSA Working paper, 683. DOI: https://doi.org/10.4102/jef.v11i1.160
Ahmed, M. S., & Ahmed, M. D. (2013). Efficiency variation of manufacturing firms: A case study of seafood processing firms in Bangladesh. Review of Economics and Finance, 3(2), 45-56.
Ahmed, M. S., & Liza, F. F. (2013). Efficiency of commercial banks in Bangladesh-A data envelopment analysis. European Journal of Economics, Finance and Administrative Science, 56, 130-152.
Ahmed, S., Hasan, M. Z., MacLennan, M., Dorin, F., Ahmed, M. W., Hasan, M. M., & Khan, J. A. (2019). Measuring the efficiency of health systems in Asia: A data envelopment analysis. BMJ open, 9(3), e022155. DOI: https://doi.org/10.1136/bmjopen-2018-022155
Alam, K. M., Xuemei, L., Baig, S., Yadong, L., & Shah, A. A. (2020). Analysis of technical, pure technical and scale efficiencies of Pakistan railways using data envelopment analysis and Tobit regression model. Networks and Spatial Economics, 20(4), 989-1014. DOI: https://doi.org/10.1007/s11067-020-09510-9
Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management Science, 30(9), 1078-1092. DOI: https://doi.org/10.1287/mnsc.30.9.1078
Banton, C. (2020). Efficiency Definition. Investopedia: https://www.investopedia.com/terms/e/efficiency.asp#:~:text=Efficiency%20is%20the%20fundamental%20reduction,goods%20or%20services%20(output).&text=Market%20efficiency%20is%20the%20ability,firms%20convert%20operations%20into%20profits
Bari, M. K., & Latifee, E. H. (2022). 4IR technologies and Bangladesh’s preparedness. The Financial Express (Bangladesh). International Publications Limited. https://thefinancialexpress.com.bd/views/4ir-technologies-and-bangladeshs-preparedness-1641391833
Baten, M. A., Kamil, A. A., & Fatama, K. (2009). Technical efficiency in stochastic frontier production model: An application to the manufacturing industry in Bangladesh. Australian Journal of Basic and Applied Sciences, 3(2), 1160-1169.
Ben-Belhassen, B., & Womack, A. W. (2000). Measurement and Explanation of Technical Efficiency in Missouri Hog Production. Annual meeting, July 30-August 2, Tampa, FL 21819, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). DOI: 10.22004/ag.econ.21819
BSA Global Software Survey. (2018). Software Management: Security Imperative, Business Opportunity. (June 4). https://gss.bsa.org/
Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European journal of operational research, 2(6), 429-444. DOI: https://doi.org/10.1016/0377-2217(78)90138-8
Chen, X., Wang, X., Wu, D. D., & Zhang, Z. (2011). Analysing firm performance in Chinese IT industry: DEA Malmquist productivity measure. International Journal of Information Technology and Management, 10(1), 3-23. DOI: https://doi.org/10.1504/IJITM.2011.037759
Chiang, T. C., Cheng, P. Y., & Leu, F. Y. (2017). Prediction of technical efficiency and financial crisis of Taiwan’s information and communication technology industry with decision tree and DEA. Soft Computing, 21(18), 5341-5353. DOI: https://doi.org/10.1007/s00500-016-2117-y
Chowdhury, L. A. M., Rana, T., & Azim, M. I. (2019). Intellectual capital efficiency and organisational performance: In the context of the pharmaceutical industry in Bangladesh. Journal of Intellectual Capital, 20(6), 784-806. DOI: https://doi.org/10.1108/JIC-10-2018-0171
Coelli, T. J., Rao, D. P., O’Donnell, C. J., & Battese, G. E. (1998). An introduction to productivity and efficiency analysis. Springer Science: New York. DOI: https://doi.org/10.1007/978-1-4615-5493-6
Cooper, W. W., Seiford, L. M., & Tone, K. (2006). Introduction to data envelopment analysis and its uses: With DEA-solver software and references. Springer Science & Business Media, 2006. DOI: https://doi.org/10.1007/978-0-387-45283-8
Cooper, W. W., Seiford, L. M., & Zhu, J. (2011). Data envelopment analysis: History, models, and interpretations. In Handbook on data envelopment analysis (pp. 1-39). Springer, Boston, MA. DOI: https://doi.org/10.1007/978-1-4419-6151-8_1
Cummins, J. D., & VanDerhei, J. (1979). A note on the relative efficiency of property-liability insurance distribution systems. In Foundations of insurance economics (pp. 521-531). Springer, Dordrecht. DOI: https://doi.org/10.1007/978-94-015-7957-5_25
Dhaka Tribune (2021). Bangladesh ranked 135th out of 137 countries in mobile internet speed. The Dhaka Tribune (28 July, 2021). https://archive.dhakatribune.com/bangladesh/2021/07/28/bangladesh-ranked-135th-out-of-137-countries-in-mobile-internet-speed#:~:text=According%20to%20Ookla%2C%20Bangladesh%20ranked,a%20latency%20of%2011%20milliseconds
Färe, R., Grosskopf, S., Lindgren, B., & Roos, P. (1992). Productivity changes in Swedish pharamacies 1980–1989: A non-parametric Malmquist approach. Journal of productivity Analysis, 3(1), 85-101. DOI: https://doi.org/10.1007/BF00158770
Forbes, M. D., Harslett, P., Mastoris, I., & Risse, L. (2010). Measuring the technical efficiency of public and private hospitals in Australia. Productivity Commission, Presented at the Australian Conference of Economists, Sydney, September 27–29 2010. https://www.pc.gov.au/research/supporting/hospital-technical-efficiency/hospital-technical-efficiency.pdf
Hasan, M. (2020). Mobile Data Speed: Bangladesh Only Ahead of Afghanistan in South Asia. The Daily Star (October 28). https://www.thedailystar.net/business/news/mobile-data-speed-bangladesh-only-ahead-afghanistan-south-asia-1985365
Helal, M., & Rahman, M. (2016). Bangladesh’s IT Industry. The Daily Star (December, 2016). https://www.thedailystar.net/op-ed/bangladeshs-it-industry-1324174
Hossain, M. (2021). Digitalisation not contributing much to GDP growth: Study. The Daily Star. (December 2). https://www.thedailystar.net/business/economy/news/digitalisation-not-contributing-much-gdp-growth-study-2907671
Hossain, M. K. (2020). Shareholding patterns and financial performance: Evidence from the banking sector in Bangladesh. Management & Accounting Review (MAR), 19(1), 135-168. DOI: https://doi.org/10.24191/MAR.V19i01-06
Huguenin, J. M. (2012). Data Envelopment Analysis (DEA): A Pedagogical Guide for Decision Makers in the Public Sector. IDHEAP: Chair of Public Finance, 2012.
IBEF- Indian Brand Equity Foundation (2019). India’s IT Market Size Growing. https://www.ibef.org/download/it-ites-feb-2019.pdf
Iqbal, Q., & Awan, D. H. M. (2015). Technical, pure technical and scale efficiency analysis of insurance companies of Pakistan. International Journal of Business and Management Review, 3(4), 82-92.
Islam, D. Z., & Hoque, M. N. (2014). Application of stochastic frontier and data envelopment analysis on the measurement of farming efficiencies in Bangladesh. North South Business Review, 5, 47-68.
Jewell, J. J., & Mankin, J. A. (2011). What is your ROA? An investigation of the many formulas for calculating return on assets. Academy of Educational Leadership Journal, 15, 79-91.
Jia, T., & Yuan, H. (2018). The application of DEA (Data Envelopment Analysis) window analysis in the assessment of influence on operational efficiencies after the establishment of branched hospitals. BMC Health Services Research, 17:265, 1-8. https://doi.org/10.1186/s12913-017-2203-6 DOI: https://doi.org/10.1186/s12913-017-2203-6
Karthik, H., Kala, P., Jain, P., & Gupta, R. (2017). Betting on the future-The Bangladesh IT-ITES industry is poised for growth. Everest Group Research, 1-14.
Kaspersky (2019). Kaspersky Security Bulletin- Statistics. https://go.kaspersky.com/rs/802-IJN-240/images/KSB_2019_Statistics_EN.pdf
Kitten, T. (2016). Bangladesh Bank Heist: Lessons Learned. Bank Info Security (April 25). https://www.bankinfosecurity.com/bangladesh-bank-heist-lessons-learned-a-9064
Koopmans, T. C. (1952). Activity analysis of production and allocation: Proceedings of a conference. Southern Economic Journal, 18, 577. DOI: https://doi.org/10.2307/1054054
Latifee, E. H. (2021). IT sector at post-LDC time: Forging industry-academia partnership. The Daily Observer (September 14). https://www.observerbd.com/news.php?id=331006
Latifee, E. H., & Hossain, M. S. (2018). ICT industry thriving, needs reform. The Financial Express (March 17). https://thefinancialexpress.com.bd/views/views/ict-industry-thriving-needs-reform-1521044586
Malaescu, A. M. (2015). Differences between DAS and International Accounting Standards regarding fixed assets treatment. Res. & Sci. Today, 9, 83.
Malhotra, B., & Dhanda, N. (2020). Measuring the efficiency of listed housing sector companies using the data envelopment approach in India. Asia-Pacific Management Accounting Journal, 15(1), 43-66. DOI: https://doi.org/10.24191/APMAJ.v15i1-03
McConnell, J. J., & Muscarella, C. J. (1985). Corporate capital expenditure decisions and the market value of the firm. Journal of financial economics, 14(3), 399-422. DOI: https://doi.org/10.1016/0304-405X(85)90006-6
Nargis, F., & Lee, S. H. (2013). Efficiency analysis of boro rice production in North-Central region of Bangladesh. The Journal of Animal & Plant Sciences, 23(2), 527-533.
Onn, C. W., & Sorooshian, S. (2013). Mini literature analysis on information technology definition. Information and Knowledge Management, 3(2), 139-140.
Pettinger, T. (2020). Technical Efficiency Definition. Economics Help. https://www.economicshelp.org/blog/glossary/technical-efficiency/
Rahman, S. (2021). Latest Cyber Attack Hit at least 147 Bangladeshi Entities. The Financial Express (April 3). https://thefinancialexpress.com.bd/sci-tech/latest-cyber-attack-hit-at-least-147-bangladeshi-entities-1617416432
Sahoo, B. K., & Nauriyal, D. K. (2014). Trends in and determinants of technical efficiency of software companies in India. Journal of Policy Modeling, 36(3), 539-561. DOI: https://doi.org/10.1016/j.jpolmod.2013.12.001
Samad, Q. A., & Patwary, F. K. (2003). Technical efficiency in the textile industry of Bangladesh: An application of frontier production function. International Journal of Information and Management Sciences, 14(1), 19-30.
Shinkai, N., & Hossain, M. (2011). Productivity and performance of IT sector in Bangladesh: Evidence from the firm level Data. The Bangladesh Development Studies, 1-22.
Siew, L. W., Fai, L. K., & Hoe, L. W. (2018). An optimal control on the efficiency of technology companies in Malaysia with data envelopment analysis model. Journal of Telecommunication, Electronic and Computer Engineering (JTEC), 10(1), 107-111.
?i?man, Z. (2017). Using Data Envelopment Analysis and Malmquist Total Factor Productivity Index for Agriculture of Turkish Regions. Unpublished Master’s Thesis. Graduate School of Natural and Applied Sciences, Istanbul Sehir University, Turkey.
Sun, S. (2021). Share of Indian IT industry in global IT spend from financial year 2001 to 2021. https://www.statista.com/statistics/1188848/india-share-of-domestic-it-industry-in-global-it-spend/
Taib, C. A., Ashraf, M. S., & Razimi, M. S. B. A. (2018). Technical, pure technical and scale efficiency: A non-parametric approach of Pakistan’s insurance and takaful industry. Academy of accounting and financial studies journal, 22, 1-11.
Tech Observer Desk (2021). Bangladesh IT sector to create one million jobs in FY 2021-22. https://webcache.googleusercontent.com/search?q=cache:eyt9DiFFk1UJ:https://techobserver.in/2021/06/05/bangladesh-it-sector-to-create-one-million-jobs-in-fy-2021-22/+&cd=17&hl=en&ct=clnk&gl=bd
Vincent, M. K. C., & Charles, V. (2012). Data Envelopment Analysis and Its Applications to Management. Cambridge Scholars Publishing.
Wang, C. H., Gopal, R. D., & Zionts, S. (1997). Use of data envelopment analysis in assessing information technology impact on firm performance. Annals of Operations Research, 73, 191-213. DOI: https://doi.org/10.1023/A:1018977111455
White, C. B. (2021). Revenue vs. Income: What’s the Difference? Investopedia. https://www.investopedia.com/ask/answers/122214/what-difference-between-revenue-and-income.asp#:~:text=Key%20Takeaways ,Revenue%20is%20the%20total%20amount%20of%20income%20generated%20by%20the,but%20they%20are%20not%20interchangeable
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Mohammad Kamal Hossain, Md Abdus Salam, Afsana Nahid
This work is licensed under a Creative Commons Attribution 4.0 International License.
For all articles published in IJRBS, copyright is retained by the authors. Articles are licensed under an open access Creative Commons CC BY 4.0 license, meaning that anyone may download and read the paper for free. In addition, the article may be reused and quoted provided that the original published version is cited. These conditions allow for maximum use and exposure of the work, while ensuring that the authors receive proper credit.
