Estimating profit efficiency among South African retail firms using stochastic frontier approach

Abstract

This paper analyses profit efficiency of selected retail firms in South Africa over the 2005–2006 period. A stochastic frontier analysis method is used. The 24 retail firms covered are ranked in terms of their efficiency performance over this period. Their efficiencies have also been tracked over time. Approximately 50% of the firms are estimated to have profit efficiency estimates higher than the average estimated for the sampled firms. The top 10 firms are performing significantly better than the average profit efficiency of 0.39. The profit efficiency of the top three firms is more than double the observed average profit efficiency performance of the sampled retail firms. However, the bottom 50% of the retail firms has performed poorly.

Keywords:

• retail firms
• profit efficiency
• retail sector
• stochastic frontier analysis
• South Africa

Acknowledgements

The authors wish to thank two anonymous referees of this journal for their helpful comments and suggestions. The editorial advice of the editors is also gratefully acknowledged.