The Measurement of Efficiency with Special Reference to Retailing

Abstract

The thesis deals with two areas: Marketing and Finance and it shows the interconnection between them. The starting point is an examination of the behaviour of the channel of distribution. A behaviour model of typical channels is developed which, empirically tested, supports the theoretical model. In the present thesis, an attempt was first made to investigate another hypothesis concerning the efficiency of firms in the given channel of distribution. More specifically, the question arises, is an efficient distributor linked with efficient suppliers and vice versa? Unfortunately, both suppliers and distributors were unwilling to disclose data required for such a study. The thesis therefore investigates the question of the measurement of efficiency from a different angle, departing from Marketing. It discusses at some length other methodologies concerned and presents the difficulties of using them. It shows that in order to effect a comprehensive measurement one should consider a map of utility indifference curves. The model developed is a combination of a number of other theories, mainly those presented by 1) Dunning and Rowan (157) which suggest the use of utility curves rather than production curves, and 2) Amey (I) who offers another concept - the comparison of ex-post with ex-ante profit. In the light of these considerations the model developed in this thesis utilizes stock market data in order to estimate ex-ante profits. For this reason the portfolio theory is employed. The model is empirically tested on a sample of public companies for a ten-year period, while techniques are developed in order to deal with such data. The thesis also examines the effect of other factors on performance, viz. the level of management divorced from ownership. The main conclusions derived from this study are: 1. The market does not attribute a constant reward to one unit of deviation from the mean of performance; the required marginal premium for additional unit of deviation is monotonic increasing. 2. The Food Industry performed better than others, while the Store Industry had the worst performance. 3. Managements do not necessarily seek the maximization of shareholders' wealth. 4. Shareholders do not always act towards the maximization of their wealth in terms of direct income. 5. Firms' performance is negatively associated with (a) the proportion of its directors' holdings in its equity, and (b) the proportion of remuneration of its directors in earnings before interest and tax. 6. The proportion of holdings in firms' equities and remuneration of their directors are inversely related to the capital intensity of the industry.