Financial performance evaluation of companies listed on Tehran Stock Exchange: A negative data envelopment analysis approach

Abstract

Purpose

This paper aims to evaluate the financial performance of companies listed on Tehran Stock Exchange by using negative data envelopment analysis (DEA) approach.

Design/methodology/approach

First, the financial metrics for performance evaluation were extracted and then filtered based on the experts’ opinions. Upon choosing the appropriate financial measures, the financial information of 72 companies selected from four automotive, pharmaceutical, petrochemical and cement industries were collected, and the criteria values were also measured. The financial performance of selected companies was assessed using negative data bounded adjusted measure in the DEA, and efficient and inefficient companies were identified. Finally, the efficient companies were ranked using Andersen and Petersen model.

Findings

The required analysis was conducted, and the financial performance of selected companies listed on Tehran Stock Exchange was evaluated. There were 58 efficient companies with a performance value of 1; 14 companies became inefficient because the efficiency size was less than 1; therefore, reference units were also introduced to the managers for efficiency of inefficient companies.

Originality/value

The aim of this study was to identify the required financial criteria and to determine an appropriate model for performance evaluation based on negative DEA. The findings can help shareholders to identify efficient companies and make the optimal portfolio accordingly; the managers of inefficient companies can also take the proper reforming actions to improve efficiency.

Citation

Karimi, A. and Barati, M. (2018), "Financial performance evaluation of companies listed on Tehran Stock Exchange: A negative data envelopment analysis approach", International Journal of Law and Management, Vol. 60 No. 3, pp. 885-900. https://doi.org/10.1108/IJLMA-12-2016-0145