Annals of Management Science


The operational efficiency of chemical industry is determined by identifying the technical and scale efficiencies by applying data envelopment analysis (DEA) models. A set of 172 companies with average data collected for the year 2005–2006 to 2009– 2010 is used for the study. The analysis begins with a benchmark study, followed by identification of peers and their followers. Twelve firms emerge as peers. The slacks of the inefficient firms are identified. Regression analysis is used to estimate the causal relationship between operational efficiency and the other chosen variables. Analyses of peer firms are conducted to identify the influencing variables of the peer firms. The first stage DEA analysis reveals that the inefficiencies such as scale and technical inefficiencies exist in the Indian chemical industry and a majority of inefficient firms are operating in the increasing returns to scale region. The second stage analysis using the OLS regression to identify the determinants of these inefficiencies reveals that net working capital to total assets ratio is contributing significantly to the inefficiencies.