Benchmarking the food and beverage industry

An empirical approach based on Data Envelopment Analysis

Konstantinos Paglamidis

Faculty of Social Sciences, April 2020

Table of Contents

Introduction 4

Chapter 1. Firm efficiency estimation using data envelopment analysis (DEA) 5

1.0. Chapter description 5

1.1. Terms presentation 5

1.2. Data envelopment analysis 7

1.3. The food and beverages industry 12

1.4. Issues for research 14

Chapter 2. Stages of methodology 14

2.0 Chapter description 14

2.1. First stage - DMU selection 15

2.2. Second stage - DEA model and bootstrap 15

2.3. Malmquist productivity index 17

2.4. Tobit analysis 18

2.5. Variable selection 21

Chapter 3. Empirical results and discussion 24

3.0. Chapter Description 24

3.1. Descriptive characteristics of variables and correlation 24

3.2. Results of DEA model and discussion 27

3.3. Results of bootstrap implementation 32

3.4. Malmquist productivity index implementation and results 33

3.5. Tobit results 35

Chapter 4. Conclusion 38

References 39

2
Abstract

This study researches the viability of Greek firms in the food and beverages industry
during the hard years of the financial crisis and how this affected their efficiency as
well as relative ranking in the sector using mathematical modelling and data
envelopment analysis. Precise economic data for the major sector stakeholders were
retrieved and analyzed to provide the efficient frontier for benchmarking the sector
and how the efficiency distribution changes during the years using the Malmquist
productivity index. The major finding resulting from data analysis is the importance
given by large firms to progress in production technology as a competitive advantage
in comparison to smaller firms who used their flexibility to adapt to the bad economic
environment by increasing their technical efficiency instead. There is room for
improvement in the sector and innovation can play a significant role. The insights
provided by data envelopment analysis of firm published data justify its importance
and promising future as a method for strategic decision making.

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Introduction

The second decade of the twentieth century is often referred to as the period of global
economic recess which had significant impact in the domestic and european economic
production. This period was characterized by large scale austerity measures and
memorandums, debt crisis, deficits, high unemployment and negative growth rates in
industrial and other sectors. Europe as a whole had to deal with a decelerating
economy with negative prospects for the future, something which was finally
confirmed by the severity of the crisis and its aftermath.

The study of the financial performance of individual production units and the
comparative analysis of their achievements in the context of financial crisis has been
an intriguing domain of interest for research of underlying correlations and
interactions between similar industrial sectors in countries which strongly experienced
the effects of the crisis. Greece was a country that was deeply affected by the crisis
and received assistance from the European Union in order for its economy to remain
functional. The industry sector was severely hit during this period which exhibited
negative growth rates, high unemployment rates and economic slowdown. One
industry sector, however, has been proven not only of great importance for Greek
economy but also has been resilient enough during the years of crisis and able to
withstand the bad economic climate. The efficiency and resilience of the food and
beverages industry in Greece is the subject of our study and supported by data
envelopment analysis we assess the viability of firms in the sector by evaluating their
relative efficiency and how it evolves during the hard years of the financial crisis.
Mathematical analysis allows us to identify the best performers in the sector who
define the efficient production frontier and the followers who will need to improve
their efficiency by following the classical paradigm that if one can achieve a possible
level of production, the others can also do it also. This efficiency comparison or
benchmarking is valuable to strategic decision makers in order to steer firms towards
the best performers.

4
Chapter 1. Firm efficiency estimation using data
envelopment analysis (DEA)

1.0. Chapter description

The following chapter presents the research context and tools related to firm
efficiency and how it can be evaluated using the mathematical modelling techniques
of data envelopment analysis. This methodology allows for benchmarking of firms in
a sector of the economy and can identify the best performers as well as what is
lacking from the followers. Our study focuses on the application of data envelopment
analysis on the food and beverages industry in Greece during the crisis years in order
to examine how the performance of firms in this sector was affected by the severity of
economic slowdown and pessimistic financial prospects of the time. The chapter
introduces the reader to the method of data envelopment analysis as well as the food
and beverages industry in Greece as the context of the study and focuses on the main
research questions to be addressed.

1.1. Terms presentation

In this study our interest focuses on the measures and the methodologies which are
used in order to estimate the viability of firms. A firm as an economic unit exists in a
specific economic context and competes with similar firms in the market for its
long-term survival and profitability. A viable business has all the means necessary to
secure an adequate market share from its competitors which will provide for the
profits needed to sustain its activities and grow. The firm’s viability, therefore, needs
to be examined under the lens of how well it competes against other firms in the long
run in the same domain and this depends on how efficient is this firm in producing in

5
relation to the other firms. In order for a firm to be viable it first needs to be efficient
and do as good as the others or even better. If a firm cannot capture a market share
and sustain profit which will allow it to finance and extend its activities, it will not
survive in the long term. A firm can be considered as a “live” economic organism
which needs profits (mainly coming from its sales in its field of operation) to sustain
its operations and grow larger. It needs to compete with others in the market in order
to ensure these profits necessary for its survival and it can achieve that only if it is
efficient enough.

The concept of productive efficiency has been heavily under study starting with the
seminal article of Farrell (1957) who refers to technical efficiency as how well the
firm uses its proportion of inputs as a percentage in comparison to the optimal
proportion that produces the output on a known efficient production function. Farrell
in parallel introduces the concept of price (allocative) efficiency taking into account
the cost of proportional inputs in achieving the optimal output. The overall efficiency
as a percentage would be the product of technical efficiency and price efficiency.
Farrell developed a method of relative efficiency comparison where the efficiency of
every unit is not compared to a benchmark but a set of comparison units which are the
best performers.

Based on the ideas of Farrell efficiency Charnes et. al. (1978) went further in defining
as productive efficiency the maximum possible ratio of a set of weighted outputs to a
set of weighted inputs, a concept which is the basis for firm benchmarking using data
envelopment analysis or DEA. The concept was simple since it involved the
maximisation of an output to input ratio without insight knowledge of a production
function (non-parametric) and without fixed weights in using the same specific ratios.
In order to assess firm viability it is necessary to compare its productive efficiency in
its sector along the selected inputs and outputs. Data envelopment analysis as a
mathematical tool can assist us in evaluating firm comparative efficiency and assess
its viability taking into consideration the different dimensions or fields along which
the firm is efficient.

6
1.2. Data envelopment analysis

Data envelopment analysis as a non-parametric linear programming method appeared

initially in the 1978 paper of Charnes, Cooper and Rhodes who based on the concept
of firm efficiency established by Farrell (1957) attempted to define a generic
framework for evaluation of relative efficiencies of firms. DEA is a linear
programming model which makes use of the maximization of the ratio of weighted
outputs to weighted inputs of a firm (or Decision Making Unit - DMU). As a method
DEA is non-parametric which means that it is unaware of the underlying production
function or relationship between inputs and outputs for a DMU which gives the
benefit of application to many different domains. Its value as a decision making tool
for management has been confirmed by the numerous applications of the method in
different contexts (profit or non-profit) and rich academic literature on the subject.

Literature is rich in applications of data envelopment analysis in firm efficiency

evaluation. Studies exist assessing firms on their sales and liquidity efficiency as in
Dokas (2015) and Dokas (2014), profitability and marketability as in Seifort (1999),
cost and revenue efficiency in Ashrafi (2017), energy efficiency as in Shanshan
(2016), environmental efficiency in Chen (2017) and others. It is interesting to notice
at this point that data envelopment analysis as a method of measuring efficiency can
be applied in various domains which can be profit or non-profit, public or private
sector and generally can address the question of efficiency in a more broad spectrum
of activities.

DEA in principle is a useful mathematical tool which allows for comparisons of

efficiency between DMUs. In its simple form DEA assumes that efficiency is the ratio
between a weighted average of output variables and a weighted average of input
variables used for production. The production function or the definition of absolute
efficiency of the DMU is not required since DEA provides relative ranking of DMU
efficiency “enveloping” not efficient DMUs by efficient ones. The model identifies

7
the efficient frontier from the observed values and compares the relative position of
each DMU to the frontier. With the term efficient frontier we refer to the maximum
production possibility with the specific level of technology and resources. When a
DMU lies on the production frontier then it has achieved productive efficiency, it
cannot produce more of one output without sacrificing another and without changes in
technology. Due to the nature of efficiency definition the input and output variables
are not required to have similar measurement units or nature (for example one
variable can be the number of employees of a DMU and another can be the interest
rate of bonds issued by that DMU). DEA calculates efficiency scores for each DMU
ranging from 0 to 1 depending on the deviation from the efficient production frontier.

In its basic form DEA calculates the efficiency score for each DMU as the maximum
h ​when ​v​i​ and ​ur​ ​ are respectively input ​i,​ = ​m ​, and output ​r, r​ = ​1,...,s ​, multipliers, ​xij​
and ​y​rj​ are DMU ​j, j = 1​,...,​n ​inputs ​i​ and outputs ​r​ and ​x​io​ and ​yro
​ ​ are DMU 0 inputs ​i
and outputs ​r​. This is the CCR model developed by Charnes, Cooper and Rhodes
(1978).

This formulation of DEA as a linear programming model focuses on how much a

DMU can increase (maximize) its output for a given level of input. The solution
provides for the maximum efficiency score (or output to input ratio) in comparison to
the other DMUs in the group. This approach is the “output-oriented” approach to
DEA. The solution of the dual linear programming model calls for minimization of

8
input for given levels of output. Our goal is the maximization of the efficiency ratio
again but instead of maximizing the numerator we target on minimizing the
denominator of the ratio. This approach of minimizing input is the “input-oriented”
approach to DEA. The model’s orientation depends on the constraints and objectives
of each situation under analysis. There can be constraints where there is no control
over some or all of the inputs leading to an output-oriented approach or vice-versa
when the desired levels of output are sought with freedom to select inputs.

The basic CCR model laid the groundwork for further conceptual developments on
benchmarking using data envelopment analysis. As the first complete model to be
used it carried relaxed constraints regarding the production technology scaling. CCR
as a model assumes what is known in literature as “constant returns to scale”. This
term is used to describe a condition where in the context of a company transforming
inputs to outputs (producing outputs) a proportional change in inputs will result in the
same proportional change in outputs irrelevant of which level of production the
company operates in. This “variable returns to scale” perspective allows for
increasing or decreasing returns to scale where a change in inputs has higher or lower
proportional change in outputs respectively.​ ​Barker et. al. (1984) relaxed the initial
CCR model by allowing for variable returns to scale and defined the BCC​ ​model.
This model does not limit the production to constant returns to scale but allows for
variations depending on the production level.

The two different models produce two different efficient frontiers depending on CRS
(constant returns to scale) or VRS (variable returns to scale) model assumptions. An
illustration of a single input variable on the x-axis and a single output variable on the
y-axis model defines efficiency as the slope of the line connecting the DMU to the
origin. The differences between the two curves are related to scale for example DMU
A can be efficient on the VRS frontier but inefficient when CRS is assumed. DMU A
can move to the CRS frontier to A​CRS-1​ (and thus become CRS efficient) by modifying
its scale (size) of production.

9
 FIGURE 1. ​CRS and VRS efficient frontiers

It is important to notice that the constant returns to scale model assumes that a firm
which does not achieve the same proportion of input/outputs as the most efficient
firm, is not efficient. This was the limitation that followed the development of BCC.
In this case firm E for example can be efficient even if it does not lie on the CRS
efficient frontier which is defined by B as the most efficient firm. Firm E operates on
a different scale (it consumes more input) and it can be the case that even firm B
would not be able to reach the same constant returns on that scale of production. The
efficient frontier defined by constant returns “penalizes” firms who may seem not
efficient but in fact they are taking into account the variable returns to scale model.

The efficient frontiers defined by data envelopment analysis provide an envelope of

the production capabilities in the sector and technology level. Changes of technology
can have significant impact and one of the most popular measurement tools is the
Malmquist or MI. Introduced in 1953 by Sten Malmquist MI is an index which can
evaluate productivity changes for a DMU or further compare the technology levels
between two economies or sectors of economies (Caves, 1982). If the production
function of economy A and B is f​a​ and f​b​ respectively, the inputs S​a​ and S​b​ and the

10
output of production Q​a​ and Q​b​ then taking into account that Q​a​ = f​a​( S​a )​ and Q​b =
​ f​b

(S​b ),
​ the Malmquist index is calculated as

The use of the Malmquist index is frequently encountered in literature in evaluation of

efficiency changes in various disciplines such as productivity in agriculture (Coelli et.
al., 2005), in health economics (Färe et. al., 1994), efficiency in the banking sector
(Berg et. al., 1992) and many others.

Data envelopment analysis models specifically addressing the food and beverages
industry are frequently encountered in literature and demonstrate a substantial
potential as guidelines in formulating economic policies aiming at improving
competitiveness. Dokas et. al. (2014) analyzed the efficiency of Athens exchange
listed firms based on their corporate liquidity during 2006 - 2009 based on financial
ratios (acid test, inventories, fixed assets, short-term liabilities and receivables
turnover ratios) and a no input output-oriented model. The author found significant
links between operating costs, size, financial leverage and return on equity to liquidity
efficiency. Gardijan et. al. (2018) performed an EU-wide analysis of the food and
beverages industry using financial ratios on a BCC output-oriented model. The paper
findings showed significant improvement potential in liquidity after this indicator was
identified to be the main source of inefficiencies and variance in the sector together
with the low earnings of the sector employees. A similar study by Dimara et. al.
(2008) addressing the survival rate of firms in the Greek food and beverages industry
has shown that both high levels of technical and scale efficiency increases the median
survival time of a firm in the market. A more recent study of Rezitis et. al. (2016)
investigated the sources of technical efficiency in the Greek food and beverages
industry during the period 1987 - 2007 using data envelopment analysis and
subsequent Tobit regression. This study identified as determinants of efficiency the
capital and labor productivity as well as the sector size which allows for scale gains.

11
Most of the studies which involve data envelopment analysis define the relative
efficiency of a firm in a sector in relation to selected inputs and outputs. The selection
of variables itself is of critical importance to the validity of the method and its insight
on the actual performance of a firm. Due to the non-parametric nature of DEA a
different selection of variables would result in different efficiencies. A firm that is
100% efficient in one configuration may not be the same efficient using a different
model. The variable selection step of the method therefore has to be strongly
supported by previous studies and literature to be able to provide an adequate
measurement model.

1.3. The food and beverages industry

In this study we focus on the food and beverages industry. The food industry sector is
considered one of the pillars of the secondary production sector of the domestic Greek
economy varying from 20% to 25% of total processing business in Greece and
scoring first after metal products and apparel (Petropoulos, 2019). The last report
from IOBE (Foundation for Economic and Industrial Research) in Greece shows in its
facts and figures for 2018 that the food industry is a leading industrial sector in
Greece accounting for 25.5% of the total number of businesses (IOBE, 2019) scoring
well above the EU-28 average of 12.4%. Moreover, more than 35% of the total
workforce engaged in the processing sector is attributed to the food industry whereas
in EU-28 this accounts for 14% of the total. Based on EUROSTAT (2020) complete
dataset for the food industry in 2017 Greece numbers 15.309 companies in the sector
placing in the top 5 countries in EU-28 (competing amongst France, Italy and Spain
with significant agricultural production). There are more than 111.000 employees in
the sector generating revenue with an annual increase of 3.4% during 2012 - 2016.
The food and beverages industry is also a strong player with a significant presence in
Greek exports since food exports accounted for 14% of total Greek exports
(Panhellenic Exporters Association, 2020).

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One of the most important characteristics of the sector is its high fragmentation as
number of firms and high concentration as revenue. Most of the firms are small
family businesses (more than 15000) with less than 10 employees which account for
only 18% of the total sector revenue. On the other hand more than 63% of revenue is
generated by 1% of larger companies employing more than 50 employees. The rest
19% of revenue is generated by middle sized firms employing 10 to 50 employees
(PwC, 2018).

During the crisis years the food sector has demonstrated a significant rigidness against
deteriorating economic conditions. Data from EUROSTAT (2020) allows us to see
the evolution of food industry turnover in Greece (classification NACE 10) during the
difficult years of 2009 - 2018 and understand better how the sector was affected. It is
noticeable that the sector has resisted well in the last years and continues to develop
further. During 2012 - 2016 the turnover of the industry increased from 11.8 to almost
13 billion euros.

FIGURE 2. ​Turnover of food and beverages industry

Source: EUROSTAT (2020)

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The comparison of efficiency between companies in the same industry sector can
provide us with valuable insight on the impact of crisis and the mechanism which
affects their productivity. It is essential to understand how their profitability is
affected in the specific macroeconomic context and why some companies have shown
resilience to the crisis where some have been severely hit.

1.4. Issues for research

The years of crisis were severe for many sectors of the economy in Greece and many
other European countries. What is of interest to the researcher due to its importance to
the total economy production is how the food and beverages industry sector was
affected during the crisis years and how the individual as well as the total sector
efficiency variated in terms of our reference variables. Our purpose is to study firm
efficiency changes in the sector during crisis times and identify common
characteristics of strategy and effects on their decisions in this context.

Chapter 2. Stages of methodology

2.0. Chapter description

This chapter presents the methodological approach to data envelopment analysis for
the food and beverages industry in Greece. The collection of data and the selection of
the appropriate model and variables as per which the analysis is done is an important
part of the study. In order to assess efficiency in terms of the current technology level
and examine any changes during time the Malmquist productivity index is calculated.
The results are validated by bootstrapping the process using the sample collected and
the impact of the macroeconomic environment is regressed using censored regression
Tobit model approaches.

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2.1. First stage - DMU selection

The data used for the study have been retrieved from the food industry sector in
Greece during the period of 2012 - 2016 and cover continuous data for 35 DMUs and
20 variables related to the financial performance and operating variables. All 35
companies are important for the sector having a significant market share and
long-term presence in the hellenic stock exchange. They were selected due to the
completeness of financial and operational data they publish by law which allows us to
study them comprehensively as panel data. The data were retrieved from ICAP group
of companies business database specializing in business data and analysis for the
Greek industry sector. ICAP provides consecutive financial data for these firms of the
Greek food and beverages industry spanning the period 2012 - 2016 of the financial
crisis and categorizes firms based on their turnover as small, medium and large. Our
industry sample includes 7 small (20%), 19 medium-sized (54%) and 9 large (26%)
firms which is a representative sample taking into account that the majority of the
food and beverages industry in Greece consists of small and medium enterprises
(SMEs).

2.2. Second stage - DEA model and bootstrap

In order to evaluate the comparative performance in the group of DMUs for the food
industry using DEA we have to focus on an adequate DEA model and elaborate on
the variables to choose. DEA in its simplest form uses the CCR model in
benchmarking the DMUs in a group. The CCR model assumes constant returns to
scale which means that the underlying technology of production can be scaled linearly
without compromising the production levels. This assumption is relaxed in further
DEA models such as the BCC model (Banker et. al, 1984) which assumes variables
returns to scale and provides a more realistic view on the factors of production and
their effect. The model chosen for our analysis to be is the CCR model which assumes

15
technological constant returns to scale. The efficient frontier calculated will provide
us with a “broader” envelope which will encompass the DMUs in the group and
assess also scale inefficiencies.

The characteristics of the food and beverages industry in Greece support the selection
of the constant returns to scale model. The industry is highly fragmented with a
homogenous distribution of market share without significantly dominant players or
cartels. They all operate under similar conditions and there is no significant variation
of size (regarding employee numbers our sample shows that 50% of them have less
than 200 staff and 75% have less than 430 staff). Because the CCR model assumes
that efficient DMUs need to provide the same input/output ratio as the most efficient
DMU it provides a more “strict” definition of efficiency increasing the deviation of
efficiency scores in the sector. The estimation of DEA efficiency for each DMU
provides an approximation for a real yet unknown maximum frontier function which
“envelopes” the production levels as empirically defined by the use of the specific
input/output configuration. The method measures the deviation from the implied
production function which is defined by the DMUs efficiency score of 100%.

The seminal paper of Simar et. al. (1998) argues on the statistical dependence of the
methods on the size of the sample and turns to bootstrapping DEA estimators in order
to estimate the population distribution of each efficiency score. This sensitivity
analysis of efficiency scores provides for a better understanding of the relative
efficiency and ranking between the DMUs. The validation of our DEA model can be
done by running iteratively the analysis using resampling with replacement, a
procedure commonly known as bootstrapping. Bootstrapping involves the selection of
a random sample with replacement from our initial sample in order to evaluate the
accuracy of our sample estimate. As a statistical estimation technique goes back to
1979 when the initial idea emerged to resample a sample in a way that the initial
sample becomes the population of the statistic (Efron, 1979). The procedure involves
a high number of repetitive resampling and calculation of the estimator statistic which
can define the confidence interval of the population/initial sample estimator. In our

16
case the estimator is the DEA efficiency score provided by the CCR model for which
bootstrap will provide confidence intervals and will allow us to validate the results.

Our initial sample of financial data for 35 DMUs in the food industry can be
resampled with replacement (the notion of replacement carries the meaning that a
DMU can appear 0 to 35 times in the resampled dataset). The requirements for the
definition of a sample dataset is that the resampled dataset is of the same size to the
original dataset and it only contains values which already exist in the original dataset.
Resampling with replacement ensures the randomness of the model under assumption.
Bootstrapping our model involves random generation of a large number of samples
and running the analysis based on the sample dataset.

2.3. Malmquist productivity index

The Malmquist productivity index or MI as it is commonly referred to in literature is a

measurement which allows for comparison of productivity between two economies,
sectors of economy or as it is often used to evaluate changes in productivity of an
economy during different time periods. This theoretical approach as applied in the
food and beverages industry sector allows us to evaluate changes of efficiency using
as a substitute of the production function the efficient frontier or envelope which the
empirical data defines. The malmquist index is valuable in non-parametric methods as
DEA as a measure of how much the efficiency frontier shifts in each time period
evaluated. Färe et. al., (1994) defined the malmquist index M using distance functions
D for time period t, t+1 and production points (y,x) where y and x represent the output
and input vectors respectively per time period.

17
This definition of the Malmquist index as the total factor productivity index shows
that the shifts to the efficient frontier can be decomposed as the product of the
technical efficiency change in the time period E (how efficient is the firm in
combining the inputs to produce the maximum outputs or how the DMU moves away
from the frontier) and the change of technical progress P or how the frontier shifts
itself. This decomposition is of great importance in establishing causal relationships
underlying efficiency changes.

2.4. Tobit analysis

Regression models have been very valuable in the field of research for causal
relationships between dependent and independent variables. In econometrics there is
broad use of regression models varying from its simplest linear form to more complex
forms involving polynomials and other non-linear types of models. In its simplest
form a regression model assumes a linear form and uses the ordinary least squares
method to minimise errors between the optimal fitting line and the actual data points.
This allows us to evaluate the fit of the model and the statistical significance of the
independent variables in explaining the dependent one.

In order to evaluate the impact of the general economic context for the food and
beverages industry sector we model firm efficiency as the dependent variable on
macroeconomic indicators. This type of regression needs to be implemented using a

18
specific type of regression model which can address the issue of censored regression.
With the term censored we refer to the limitations of values which the dependent
variable can take. In our case the firm efficiency as a dependent variable is bounded
from zero to one. This category of regression models are generally referred to as
Tobit models in the name of James Tobin (1958).

The specificities of censored regression expand further in the method of calculation of

the model. In ordinary least squares (OLS) the model is calculated in order to identify
the theoretical line that minimises the square error of observations to their estimation
on the line. In this case the regression line is not limited on values to the right or left
of the sample set and can be used for prediction of values. The coefficient of
determination R​2​ is used to evaluate the goodness of fit of the regression model. In
case of censored regression the maximum likelihood estimation is used to determine
the parameters of the model. The assumption of a distribution of data points is
assumed (usually normal) and the model calculates the mean and standard deviation
of an estimated distribution that could produce the observed data points with the
maximum likelihood. If a normal distribution is assumed the maximum likelihood
estimation yields the same results as OLS, however, this is not the case with other
distributions. The nature of this likelihood estimation allowed Tobin to model the
unequal sampling probability of censored variables by calculating the cumulative
probability for any observation lying outside of the censored dependent variable
limits. Due to its nature of maximum likelihood estimation the censored regression
models do not have a coefficient of determination R​2 ​for evaluation of model fit like
OLS but the log-likelihood is used to measure the fit of the model. The measure used
in McFadden’s pseudo-R​2​. If logLik(model) is the log-likelihood of our model and
logLik(intercept only model) is the log-likelihood of the intercept only model then

McFadden’s R​2​ = 1 - logLik(model) /logLik(intercept only model)

This pseudo-indicator simulates the goodness of fit for the model with values ranging
from zero to one. If the model does not predict the outcome substantially better from
the null (intercept only) model then the ratio of log likelihoods is close to one and the

19
pseudo-R​2​ close to zero. In the opposite case a good model yields pseudo-R​2​ close to
one.

The inputs in the model involve the level of financial expenses, retained earnings and
total assets utilized to achieve an adequate gross profit margin. The decisions which
firms take for their financing are a significant part of their strategy towards
competitors. Some firms prefer to finance using external debt (bank loans) to third
parties where others prefer to retain their earnings for further financing of their growth
by their own means. Different strategies exist taking into account many parameters in
order to decide how much debt is optimal for each firm. The characteristics of the
financial crisis, however, included limited bank liquidity and less loans available for
corporate lending. The yearly level of corporate lending in Greece during the period
of study can be valuable to understand how corporate lending conditions affect firm
efficiency. From the output perspective since a major characteristic of the crisis was
decrease of demand, the level of food production is an indicator linked to return of
scale efficiencies in the food and beverages industry. Identifying the level of corporate
lending and levels of food production during the years of study allows us to regress a
Tobit model for each type of firm in our sample (small, medium and large) and
evaluate the effects of the independent variables for each group. The impact of
macroeconomic variables describing the context in which the food and beverages
industry can be modeled by a Tobit censored regression model relating the censored
DEA efficiency score (with values from zero to one) to the dependent variables of the
yearly food production (PROD) and corporate lending (LOANS) in Greece during the
years 2012 - 2016. The changes in the economic and market climate during the crisis
years are visible in the losses of gross domestic product from 2012 to 2016. We
evaluate the impact of these changes using a linear model where the dependent
variable Y is the bounded DEA efficiency, PROD​ ​, LOANS​ ​ the independent variables
and the error ε of the linear prediction model for each DMU j per year i.

Y​ij​ = β0​ +
​ β1​ PROD
​ ​ ​+ β​2 ​LOANS​ij​ + ε​ij
ij

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2.5. Variable selection

Data envelopment analysis by itself as a method does not specify a method of

selection of variables, however a lot of literature exists related to this issue. A number
of studies exist about DEA where selection of variables is based on expert judgement
or statistical methods (focused on the correlation between variables). Jenkins et. al.
(2003) refers to high correlation between input and output variables which limits the
explanatory power of DEA models and its ability to calculate the relative efficiency
among the DMUs. Omission of highly correlated variables leads to a leaner and more
discriminatory model in relation to the size of the DMU group. Due to the
mathematical formality of DEA models a higher number of variables increases the
dimensionality of the solution (pushes most of the companies to the efficient frontier).
The explanation power of DEA therefore depends on the selections of variables. A
high number of input and output variables lead to a high percentage of efficient
DMUs in the group and does not allow for deductions about the causes of
inefficiency. Previous literature on this subject agrees that the relative efficiency
scores are highly dependent on the number of input and output variables. A high
number of input and output variables will increase the dimensionality and decrease
the discriminatory power of DEA (Subramanyam, 2016).

Apart from the number of variables to be used one has to add the significance of the
variables for the context of our study. There variables which are under control of the
management of the company and can be decided to increase or reduce them
(discretionary variables) as well as variables which are beyond the control of the firm
(non-discretionary) and set the environment in which the firm operates. The value of
DEA as a benchmarking tool and the conclusions of its application focus on variables
which can be a valuable feedback for managerial decision making.

Sinuany-Stern et. al. (1998) focus on the correlation between variables as a screening
method to reduce the variables to be used for DEA. ​ As a practical rule commonly
applied as per ​Sinuany-Stern e. al. (1998) is that the total number of input and output

21
variables for DEA should be less than the one third of the number of DMUs in the
group. In our case with a sample of 35 DMUs the total number of input and output
variables should not be more than 10. Nooreha et. al. (2000) put forward an additional
practical rule based on empirical findings that the number of DMUs should be more
or equal than the double of the sum of input and output variables.

Similar studies on the field have been selecting a variety of input/output variables for
assessing the relative efficiencies in a sector. Kumar et. al. (2008) on a study of
productivity of the Indian food industry use as inputs the monetary value of labour
and capital. Labor is quantified as the total salaries and wages of workers in monetary
terms and capital as the gross fixed assets. The output variable used as a proxy to
productivity was the gross value added by the firm with all monetary terms deflated
accordingly to account for real and not nominal value terms. Kapelko et. al. (2016) in
their application of DEA in the Spanish food processing industry they benchmark
productivity using as inputs deflated monetary material cost, labor cost and fixed
assets. Output is measured by total production in terms of total sales plus the change
in the value of the DMUs stock. Dokas et. al. (2015) focuses on the liquidity and sales
efficiency in the Greek food industry.

In congruence with similar studies the sales efficiency model measures firm
performance on their output sales based on two inputs, the total assets and the
operating expenses (without Cost of Goods Sold). Rezitis et. al. (2016) investigated
technical efficiency in the Greek food industry using as input the total man-hours of
work (labor) and the gross capital stock as the value of total fixed assets. In this case
output was defined as the value added in depreciated monetary terms. These examples
from literature focus on a small number of input/output variables benchmarking
profitability on the dimensions of variable labor (staff) costs and fixed assets
simulating a broad definition of a production function with inputs labor and capital.

Following the examples from literature we base the selection of variables on the
correlation between them. Highly correlated variables reduce the utility of DEA as a
ranking method and should be omitted. From our initial set of input/output variables

22
we compute the correlation matrix (lower triangle) where highly correlations are
identified in the financial data sample (notice high correlations between total assets
and sales or between staff numbers and total assets). In order, therefore, to reduce the
dimensionality we select non highly correlated variables. Since we are evaluating the
relative efficiency of the sector during the difficult macroeconomic conditions of the
crisis (high unemployment rates, unfavorable debt conditions, decline in
consumption), our inputs will focus on the total assets of a DMU, the level of
financial expenses incurred during a period and the retained earnings. As output we
will consider the gross profit margin which, as a measure of profitability, better
represents our purpose by accounting for differences in the sizes of DMUS and their
market share in the Greek food industry.

The application of DEA as a linear programming model assumes positive inputs

(Charnes, 1978). It is often present in empirical data that financial statements encode
negative values for income statements, earnings or other monetary flow variables.
DEA in its essence performs relative ranking of efficiencies and although negative
values are not allowed in the model, there are linear variable transformations available
which bias positive all variables without changing their relative ranking. DEA is not
based on absolute distances but categorical ranking between DMUs therefore a linear
transformation of variables does not have an impact on the ranking estimation. Ali
(1990) and Pastor (1996) suggested the translation invariance of variables with
negative values where an affine displacement (bias) does not change the efficient
frontier in the CCR model. This allows for the addition of absolute constants (bias)
which solve the positivity issue and allow for the scalar mathematical model to
provide results. An evaluation of our empirical data reveals negative values in the
input variable of retained earnings and the output variable of gross profit margin. The
addition of a sufficient large constant in both cases linearly translated the variables in
such a way that the CCR model can be solved (positivity) and this could be the
absolute value of the maximum value of the respective variable.

23
Chapter 3. Empirical results and discussion

3.0. Chapter Description

This chapter presents the implementation of the theoretical analytical framework

using the data collected for the Greek food and beverages industry. The empirical
results are presented and evaluated in the macroeconomic and financial context of the
crisis in the country. The descriptive characteristics and correlation matrix support the
selection of gross profit margin, total assets, financial expenses and retained earnings
as low correlated variables for our model. The results of the CCR model per year are
validated by iterative resampling (bootstrap) and the model output lies in the intervals
defined by bootstrap. The efficiency scores per year reflect the changes in efficiency
during the period of study which are analyzed further by decomposing the Malmquist
productivity index. Firm efficiency is subsequently regressed as the dependent
variable of a Tobit model.

3.1. Descriptive characteristics of variables and correlation

The variables selected and their descriptive statistics show an interesting distribution.
The amounts refer to a total panel sample of 35 DMUs during 2012 - 2016 and are
presented in EUR. Gross profit margin varies from -46.560 to 224 (a negative profit
margin means that a firm operates on loss). Total assets vary from 2.2 MEUR to 962
MEUR while the financial expenses start from as low as 2.7 KEUR and reach up to
72 MEUR. Retained earnings show how the firm has managed its profits by
re-distributing to the stakeholders or re-investing in the firm. In our firm sample
retained earnings vary from -527 MEUR to 29 MEUR with the meaning of negative
retained earnings to be the accumulated deficit caused by the firm operating with
losses. In this case there are no profits to be distributed due to financial losses or there

24
can be that the firm is profitable but for a reason it decides to distribute earnings
higher than its profits.

TABLE 1. Descriptive statistics of variables

Statistic N Mean St. Dev. Min Pctl(25) Pctl(75) Max

Total 175 132,160,990.000 203,949,171.000 2,244,139 24,926,854 139,700,149 961,985,000

Assets

Retained 175 -28,991,848.000 93,891,161.000 -527,064,318 -6,390,422 6,862,625 29,481,708

Earnings

Financial 175 2,826,110.000 7,865,970.000 2,341 7,967 1,255,546 72,168,000

Expenses

Gross 175 51.273 46.581 -46.560 19.315 72.700 224.000

Profit
Margin

The correlation matrix of the financial data collected supports the identification of
highly correlated variables which can undermine the statistical significance of the
independent variables in the model. The isolation of low correlated variables points us
to the selection of variables which can add statistical explanatory value to the results
of the model. Highly correlated variables reduce the utility of DEA as a ranking
method and should be omitted. Our initial set of input/output variables allows us to
compute the correlation matrix (lower triangle) where highly correlations are
identified in the financial data sample (the reader can notice high correlations between
total assets and sales or between staff numbers and total assets). This follows naturally
the paradigm of the larger the firm, the more staff it employs and the more total assets
it counts.

The correlation between the variables of our model allows us to eliminate issues of
multicollinearity. If the variables are not independent but have high correlation
between them their statistical significance and the explanation power of the model

25
 diminishes. It is easy to think that if there is some kind of underlying relationship
between the independent variables this will disturb and obfuscate the relationship we
would like to investigate between the independent variables and the dependent one.
References in literature suggest to avoid highly correlated variables with higher than
70% (or 0.7) correlation. An analysis of the variables in our model shows low
correlation of gross profit margin to total assets, financial expenses and retained
earnings with a maximum of 0.467. Similar levels of correlation exists between the
inputs (total assets to financial expenses is 0.377, total assets to retained earnings
-0.613 and financial expenses to retained earnings -0.063). We can consider that these
correlations are not high enough to introduce problems of multicollinearity in the
model and can be accepted for the study.

TABLE 2. Correlation matrix

Cost of Other Total Gross

Market Total Gross Total Retained Short-term Financial Operating
Staff Sales Goods Net Profit Operating Operating Loans Profit
Share Assets Profit Capital Earnings Liabilities Expenses Income
Sold Expenses Expenses Margin

Market
1
Share

Staff .910 1

Total
.946 .915 1
Assets

Sales .995 .919 .954 1

Cost of
Goods .988 .869 .916 .989 1
Sold
Gross
.904 .950 .949 .920 .851 1
Profit

Net Profit -.750 -.699 -.733 -.742 -.772 -.584 1

Total
.821 .730 .828 .824 .836 .701 -.875 1
Capital
Retained
-.661 -.417 -.613 -.654 -.720 -.411 .612 -.741 1
Earnings
Short-term
.938 .874 .925 .943 .930 .874 -.674 .668 -.612 1
Liabilities
Financial
.520 .430 .377 .532 .533 .472 -.274 .316 -.063 .412 1
Expenses
Other
Operating .944 .953 .956 .954 .907 .972 -.726 .812 -.487 .870 .554 1
Expenses
Total
Operating .939 .937 .933 .950 .906 .960 -.708 .792 -.460 .857 .634 .995 1
Expenses

Loans .492 .609 .713 .502 .396 .724 -.368 .401 -.106 .555 .003 .641 .596 1

Operating
-.542 -.471 -.395 -.531 -.600 -.295 .841 -.637 .411 -.428 -.501 -.492 -.517 .091 1
Income
Gross
Profit .346 .485 .467 .364 .270 .570 -.139 .206 .030 .395 .091 .486 .462 .611 .124 1
Margin

26
3.2. Results of DEA model and discussion

Table 3 presents the efficiency scores for the 35 DMUs during the years 2012 - 2016.
Efficient DMUs with score 1 are marked with an asterix. An evaluation of the yearly
efficiency ratings shows that in 2012 there were 8 efficient firms in the representative
firms in the food and beverages industry (F06, F08, F09, F19, F25, F29, F31, F33)
which increased to 9 (F04, F06, F08, F09, F11, F19, F29, F31, F33) during the years
2013 and 2014. In 2015 there was a reduction to 6 efficient firms which increased to 7
in 2016. In terms of efficiency a percentage of 17% to 26% of the firms are 100%
whereas the average efficiency for the period variates from 79% to 82.5%. A number
of 3 firms (F06, F19, F29) show efficiency of 100% for each year and 7 others (F04,
F08, F09, F11, F25, F27, F33) appear to be efficient in some years but not during
each year. We can support that these 3 firms follow a successful model of gross profit
margin by proper utilization of their assets, retained earnings and financial expenses.

Related to their size out of the 3 most efficient firms 2 of them are of small size and 1
medium as categorized by ICAP. Out of the 7 others which achieve 100% efficiency
but not during all years there are 3 small, 3 medium and 1 large firm. We can support
that the size of the firm does not necessarily mean efficiency as defined by gross
profit margin on total assets, financial expenses and retained earnings. Small and
medium sized firms of 50 - 100 staff in the food and beverage industry can also be
proven to be viable in comparison to larger stakeholders. The distribution of
efficiency for our sample in 2012 shows efficiency levels which vary from 0.5 to 1.0.
The series of firms is listed in alphabetical order and produces a distribution of the
best performers in comparison with the followers in the food and beverages industry
sector.

27
 FIGURE 3. ​DEA efficiency in 2012

Starting with base year 2012 the evolution of average efficiency for the sample
increases from 0.81 to 0.83 until the year 2014 and then slightly decreases to 0.79 for
the years 2015 and 2016. On average there is not much deviation of the average
efficiency levels of the sector having on average a 0.8 efficiency score. On an
individual basis however there are higher fluctuations in efficiency ranging from 0
(firms who appear to be efficient at 1.00 all the time) to maximum of 17% of yearly
changes such as the case of F25). F25 appears to be efficient in 2012 but follows a
series of efficiency losses to end up at 0.668 in 2016 showing significant problems in
efficient management of inputs. A close investigation of the yearly financial data for
the firms can provide valuable insight about the underlying effect on firm efficiency
taking an example firm F25. Although this large firm managed to retain its 500+
employees and significant market share in the Greek dairy market there was a
significant increase of 56% of total assets which are under-utilized, significant
increase of financial expenses by 25% but decrease of gross profit margin from 74%
to 43.6% during the years of crisis. A similar case of efficiency decrease can be
identified with F21 where the firm lost profit margin from 93% to 83% with an
increase in financial expenses from 6.2 to 7.4 million euros. Loss of profit margin
seems to be one of the main reasons decreasing the efficiency of firms and it is

28
attributed to increased expenses since our data does not show a reduction of sales. The
revenues of the food and beverages industry in Greece show an annual rate of 3.4%
increase during 2012 - 2016.

Firms F06, F19 and F29 define the efficient production frontier which envelopes the
others as they exhibit efficiency during the complete period of study based on the
input and output parameters defined in our CCR model. Firm F06 is a small firm
which from 2012 to 2016 reduces gradually to more than 50% its total assets while its
profit margin does not vary significantly. Its financial expenses almost double in this
period but they are considered small in comparison to the reduction of its total assets.
F19 and F29 show similarly a reduction in total assets and increase in financial
expenses without significant changes in the gross profit margin. There are similarities
in the way that firms did not follow expansionary strategies in the crisis years but they
managed their assets with conservations in contrast to firms such as F25 which big
increases of assets diminished its efficiency. It is interesting to mention that in parallel
with reduction of assets there were no significant changes in the numbers of
employees. The analysis from staff data shows that 50% of the firms had less than 9%
variation of their staff numbers and 75% of them less than 16% which reveals that the
highly fragmented small and medium businesses in the food and beverages sector
prefer to keep their skilled workforce intact and downsize if needed by reducing their
total assets.

Regarding the rate of changes in efficiency the maximum positive change in

efficiency from 2012 to 2016 was 28.5 percentage points for F12 mainly due to
diminishing financial expenses for this middle-sized firm and -38.1 percentage points
for F08 which is a large firm operating on negative net profit and with negative
retained earnings for stakeholders. The highest annual positive change was between
2013 to 2012 for F12 which achieved an increase of 29.6 percentage points while the
highest yearly decrease was 26.8 percentage points for F25 during 2013 to 2014.

29
 TABLE 3. ​DEA efficiency​ 2012 - 2016

Decision Making Unit (DMU) 2012 2013 2014 2015 2016

F01. AGROHELLAS S.A. 0.759 0.744 0.701 0.682 0.667

F02. ARI S.A. 0.828 0.793 0.718 0.734 0.748
F03. CONDITO S.A. 0.789 0.783 0.877 0.811 0.822
F04. COURIS BROS S.A. 0.875 1.000* 1.000* 0.866 0.856
F05. CRETA FARM S.A. 0.921 0.949 0.875 0.637 0.622
F06. DAMA MON S.A. 1.000* 1.000* 1.000* 1.000* 1.000*
F07. DEAS S.A. 0.687 0.673 0.678 0.635 0.634
F08. DELTA S.A. 1.000* 1.000* 1.000* 0.766 0.619
F09. DOMAINE COSTA LAZARIDI S.A. 1.000* 1.000* 0.95 0.93 1.000*
F10. ELGEKA S.A. 0.682 0.77 0.834 0.82 0.744
F11. EUROFEED S.A. 0.803 1.000* 0.782 0.942 1.000*
F12. EVROFARMA S.A. 0.669 0.965 0.915 0.921 0.954
F13. FAGE S.A. 0.738 0.687 0.587 0.537 0.686
F14. FALCON S.A. 0.852 0.811 0.84 0.822 0.783
F15. FARMA EFYRA S.A. 0.693 0.687 0.712 0.676 0.695
F16. FEDON S.A. 0.866 0.87 0.919 0.891 0.884
F17. FLOUR MILLS C. SARANTOPOULOS S.A. 0.738 0.741 0.743 0.751 0.766
F18. HELLENIC JUICES S.A. 0.807 0.838 0.815 0.785 0.785
F19. HELLENIC SUGAR INDUSTRY S.A. 1.000* 1.000* 1.000* 1.000* 1.000*
F20. IKTINOS HELLAS S.A. 0.699 0.656 0.629 0.619 0.637
F21. KARAMOLEGOS BAKERY S.A. 0.723 0.683 0.677 0.623 0.627
F22. KASIDIS S.A. 0.778 0.777 1.000* 0.785 0.778
F23. KONSTANTOPOULOS OLYMP S.A. 0.672 0.663 0.644 0.636 0.627
F24. KRE.KA S.A. 0.608 0.589 0.857 0.903 0.649
F25. KRI-KRI MILK INDUSTRY S.A. 1.000* 0.911 0.643 0.628 0.668
F26. KRITON ARTOS S.A. 0.883 0.862 0.886 1.000* 0.906
F27. LA KRE S.A. 0.813 0.829 1.000* 1.000* 0.818
F28. LOULIS MILLS S.A. 0.563 0.55 0.55 0.521 0.545
F29. MEDITERRA S.A. 1.000* 1.000* 1.000* 1.000* 1.000*
F30. MEVGAL S.A. 0.665 0.639 0.658 0.676 0.628
F31. MILTOS S.A. 1.000* 1.000* 1.000* 1.000* 1.000*
F32. OPTIMAL SUPPLY CHAIN A.E. 0.744 0.865 0.851 0.772 0.851
F33. PANAGIOTIS G. NIKAS S.A. 1.000* 1.000* 1.000* 0.853 1.000*
F34. PERSEUS S.A. 0.561 0.564 0.581 0.573 0.682
F35. RODOULA S.A. DOUGH PRODUCTS 0.891 0.966 0.963 0.983 0.991

The yearly average efficiency of the sample does not change significantly from 2012
to 2016 with means close to 80% and minimums close to 55%. This uniformity shows
that changes in efficiency do not exhibit so fast in the sector as a whole because
during the crisis years there is no available and convenient bank funding to explore
new growth opportunities and the main strategy of the sector seems to be a
conservative survival strategy maintaining its market share and established gross
profit margins.

30
 TABLE 4. ​Descriptive statistics of efficiency

Statistic N Mean St. Dev. Min Pctl(25) Pctl(75) Max

2012 35 0.809 0.136 0.561 0.696 0.906 1.000

2013 35 0.825 0.147 0.550 0.687 0.983 1.000

2014 35 0.825 0.149 0.550 0.690 0.982 1.000

2015 35 0.794 0.151 0.521 0.657 0.926 1.000

2016 35 0.791 0.147 0.545 0.658 0.930 1.000

The size of a firm as an indicator of its efficiency does show interesting results.
During 2012 - 2016 small firms perform better than middle-sized and large firms. In
2012 the average efficiency of small firms is close to 90% and this increases slowly to
95% whereas middle-sized firms start with 80% efficiency which increases in 2013
and 2014 to be followed by a decrease in 2015. Large firms have a similar behaviour
but their efficiency decreases down to 65% - 70%. This allows us to support that
small firms which are the majority of the sector had the necessary flexibility to adapt
fast to the deteriorating financial conditions of the crisis in comparison to their larger
competitors in the sector. The analysis of Malmquist productivity index provides us
further on with more insight of firm behaviour segregated by firm size and year. The
average changes of efficiency closely follow the path of the middle-sized firms which
comprise 54% of our sample reflecting the highly fragmented structure of the
industry.

31
 FIGURE 4. ​Distribution of average efficiency by firm size and year

3.3. Results of bootstrap implementation

Bootstrap resampling from the 35 DMUs under study for each year from 2012 to 2016
has produced a distribution of possible DEA efficiency scores. The analysis of the
bootstrap results shows the distribution of efficiency using resampling of our initial
dataset for ​NRep = 1000​ iterations which validates our model with corresponding
efficiency averages varying from 80% to 85%. There is an increase of efficiency
during the years 2013 - 2014 and a subsequent decrease during 2015 - 2016 matching
the results of our initial firm sample. The results from bootstrap show that the yearly
efficiency of firms vary from a minimum of 50% - 55% to 100% and this coincides
with the statistical distribution of the CCR model results. There is no significant
variation between the estimated model results and the intervals as provided by the
multiple combinations of the bootstrap procedure as our model results fit well within
the distribution produced.

32
 FIGURE 5. ​Boxplot of bootstrap efficiency range (NRep=1000)

3.4. Malmquist productivity index implementation and results

The calculation of Malmquist productivity index per yearly period for our sample is
included below. Every year reflects the changes in total productivity (mq) as a product
of the changes in technical efficiency (ec) and technology (tc) from the previous year
for each decision making unit following the paradigm

Productive efficiency change (mq) = efficiency change (ec) x technology change (tc)

The decomposition of Malmquist index in efficiency and technology change is

important to understand if changes in firm efficiency are attributed to the firm moving
closer to the efficient frontier assuming the technology is fixed or the shift of the
production frontier itself due to changes in the technological level. If the Malmquist
index is bigger than 1 then we have an increase in efficiency and respectively if less
than 1 we have a decrease with mq=1 denoting no change at all.

33
 TABLE 5. ​Malmquist productivity inde​x

DMU 2013 2014 2015 2016

mq ec tc mq ec tc mq ec tc mq ec tc

F01. AGROHELLAS S.A. 0.989 0.980 1.010 0.943 0.943 1.000 0.980 0.973 1.008 0.966 0.978 0.988

F02. ARI S.A. 0.988 0.957 1.032 0.905 0.906 0.999 1.031 1.023 1.007 1.021 1.018 1.003

F03. CONDITO S.A. 1.006 0.992 1.014 1.119 1.119 1.000 0.931 0.925 1.007 1.003 1.013 0.990

F04. COURIS BROS S.A. 0.978 1.142 0.857 0.966 1.000 0.966 0.918 0.866 1.061 0.993 0.989 1.004

F05. CRETA FARM S.A. 1.146 1.031 1.112 1.018 0.922 1.104 0.888 0.728 1.220 1.003 0.976 1.027

F06. DAMA MON S.A. 1.103 1.000 1.103 1.170 1.000 1.170 0.980 1.000 0.980 0.984 1.000 0.984

F07. DEAS S.A. 1.000 0.980 1.020 1.007 1.007 1.000 0.943 0.936 1.008 0.987 0.999 0.987

F08. DELTA S.A. 1.422 1.000 1.422 1.239 1.000 1.239 1.186 0.766 1.547 0.455 0.808 0.563

F09. DOMAINE COSTA LAZARIDI S.A. 1.009 1.000 1.009 1.021 0.950 1.075 0.962 0.979 0.982 1.021 1.075 0.950

F10. ELGEKA S.A. 1.206 1.129 1.069 1.113 1.083 1.027 1.086 0.984 1.104 1.027 0.907 1.133

F11. EUROFEED S.A. 1.873 1.245 1.504 0.710 0.782 0.909 1.402 1.205 1.164 0.588 1.062 0.554

F12. EVROFARMA S.A. 1.454 1.441 1.009 1.023 0.949 1.078 0.987 1.007 0.980 1.003 1.035 0.969

F13. FAGE Greece S.A. 1.015 0.932 1.090 0.884 0.854 1.035 1.023 0.916 1.117 1.041 1.277 0.815

F14. FALCON S.A. 0.980 0.951 1.030 1.036 1.036 1.000 0.987 0.979 1.009 0.939 0.952 0.987

F15. FARMA EFYRA S.A. 1.011 0.991 1.020 1.036 1.036 1.000 0.955 0.949 1.006 1.019 1.028 0.991

F16. FEDON S.A. 1.007 1.005 1.002 1.056 1.056 1.000 0.972 0.969 1.003 0.987 0.992 0.995

F17. FLOUR MILLS C. SARANTOPOULOS S.A. 0.997 1.004 0.993 1.003 1.002 1.000 1.013 1.011 1.002 1.017 1.021 0.996

F18. HELLENIC JUICES S.A. 1.015 1.038 0.978 0.973 0.973 1.000 0.965 0.963 1.002 0.995 1.000 0.996

F19. HELLENIC SUGAR INDUSTRY S.A. 1.064 1.000 1.064 1.106 1.000 1.106 1.471 1.000 1.471 1.322 1.000 1.322

F20. IKTINOS HELLAS S.A. 0.980 0.939 1.044 0.958 0.958 0.999 0.993 0.985 1.009 1.016 1.029 0.988

F21. KARAMOLEGOS BAKERY S.A. 0.977 0.945 1.035 1.000 0.991 1.009 0.978 0.920 1.063 1.030 1.007 1.023

F22. KASIDIS S.A. 0.981 0.999 0.982 1.309 1.287 1.017 0.808 0.785 1.029 0.988 0.990 0.997

F23. KONSTANTOPOULOS OLYMP S.A. 1.033 0.986 1.047 0.970 0.971 0.999 0.993 0.988 1.006 0.986 0.986 1.000

F24. KRE.KA S.A. 1.020 0.969 1.053 1.519 1.456 1.044 1.020 1.054 0.968 0.765 0.718 1.065

F25. KRI-KRI MILK INDUSTRY S.A. 0.858 0.911 0.941 0.742 0.706 1.051 1.001 0.977 1.025 1.020 1.063 0.960

F26. KRITON ARTOS S.A. 0.963 0.977 0.986 1.035 1.027 1.007 1.419 1.128 1.258 0.511 0.906 0.564

F27. LA KRE S.A. 1.017 1.020 0.998 1.261 1.206 1.045 0.999 1.000 0.999 0.657 0.818 0.803

F28. LOULIS MILLS S.A. 0.998 0.977 1.022 1.001 1.000 1.001 0.985 0.948 1.039 1.016 1.045 0.972

F29. MEDITERRA S.A. 1.031 1.000 1.031 0.990 1.000 0.990 1.006 1.000 1.006 0.995 1.000 0.995

F30. MEVGAL S.A. 1.047 0.962 1.088 1.066 1.030 1.035 1.159 1.027 1.128 1.066 0.928 1.149

F31. MILTOS S.A. 0.880 1.000 0.880 0.989 1.000 0.989 1.080 1.000 1.080 0.886 1.000 0.886

F32. OPTIMAL SUPPLY CHAIN S.A.. 1.091 1.163 0.938 1.012 0.984 1.028 0.944 0.907 1.041 1.092 1.102 0.991

F33. PANAGIOTIS G. NIKAS S.A. 0.977 1.000 0.977 1.164 1.000 1.164 0.833 0.853 0.977 1.401 1.173 1.194

F34. PERSEUS S.A. 1.012 1.005 1.007 1.022 1.031 0.991 0.994 0.986 1.007 1.326 1.190 1.114

F35. RODOULA S.A. DOUGH PRODUCTS 1.104 1.084 1.018 0.996 0.996 1.000 1.026 1.021 1.005 1.001 1.009 0.992

The average technical efficiency per year varies from 0.96 to 1.02 in relation to the
changes in technology which vary from 1.03 to 1.91. We can support that most of the
firms benefited more by the technology change during time than the changes in their

34
technical efficiency. The technical component of the Malmquist index appears to be
higher. From 2013 to 2016 the changes in technology were more important than the
changes in technical efficiency in levels of 65.7%, 57.1%, 77.1% respectively
whereas in 2016 the changes in efficiency overseed the 37.1%. The categorization of
firms in small, medium and large as per ICAP shows the following correlation
characteristics in terms of technical and technology changes during the period with
positive correlation up to 25% for changes in technology and negative correlation up
to 41% for changes in technical efficiency. Smaller firms seem to cope easier in crisis
in terms of technical efficiency in better adjusting their input/output mix compared to
larger firms which seem to benefit more by technology changes as they have a larger
spending on research and development. The correlation of technical progress
increases from 22.5% to 53% during the years of study showing an accelerating
contribution of food production technology in increasing firm efficiency during the
crisis years. Lack of financial resources forces stakeholders to address the crisis using
new technologies. Technical efficiency on the other hand shows a very slight negative
correlation and does not allow for any strong conclusions.

3.5. Tobit results

The application of censored regression on panel data of 175 samples representing 35

DMUs during 5 years DEA efficiencies as a dependent variable reveals interesting
underlying relationships to the independent variables selected. The segmentation of
our sample in small, medium and large firms shows differences in the effect of the
independent variables to firm efficiency. The food production level during 2012 -
2016 for small firms is a coefficient statistically significant on the 95% level (p <
0.05) and has a negative sign. This means that an increasing food production has a
negative impact on the efficiency of small firms in the sector which cannot take
advantage of economies of scale in the same way as larger companies with a
significant level of assets. The level of business loans has a negative sign but is not
statistically significant for the model. A negative sign means that high levels of

35
business lending has a negative impact for small businesses for which the percentage
of financial expenses to their total expenses is higher. The pseudo-R​2​ used to assess
the goodness of fit of the model is close to 60% so the fit of the model is average.

TABLE 6. ​Tobit regression for small firms

Estimate Std. error t value Pr(> t)

(Intercept) 4.101 1.305 3.142 0.002 **

PROD -0.033 0.014 -2.346 0.019 *

LOANS -0.040 0.024 -1.633 0.103

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Pseudo-R​2​ = 0.57

For small firms financial expenses account for maximum 21.8% of the total expenses
with 75% of the firms spending less than 6.2%. For medium-sized firms the
maximum raises up to 55.2% with 75% of the firms under 20%. The Tobit regression
coefficients in the case of medium-sized firms does not show statistical significance
for either the levels of production or level of lending. There is a slight negative
relationship between firm efficiency and these variables but in this case the effect is
negligible and we are unable to support the existence of any dependency. The
goodness of fit for the model is 0.43 which is an average fit.

TABLE 7. ​Tobit regression for medium-sized firms

Estimate Std. error t value Pr(> t)

(Intercept) 1.180 0.705 1.674 0.094

PROD -0.008 0.007 0.429 0.669

LOANS -0.002 0.013 -0.197 0.844

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Pseudo-R​2​ = 0.43

36
In the case of large firms we encounter a very strong statistical significance of
business lending having a p value close to zero. Large firms rely heavily on business
lending due to their size and have a significant share of financial expenses on their
financial statements with an average value of 14%. An increase of business lending by
1 billion euro (units are in billion euros) could increase by almost 10% the efficiency
of large firms in the food and beverages sector. The fit of the model in the case of
large firms is 0.46 in similar levels with the Tobit models for small and medium-sized
firms.

TABLE 8. ​Tobit regression for large firms

Estimate Std. error t value Pr(> t)

(Intercept) -0.950 1.204 -0.790 0.430

PROD 0.017 0.013 1.292 0.196

LOANS 0.106 0.023 4.648 0.0000033 ***

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Pseudo-R​2​ = 0.46

In the case of large firms we encounter a very strong statistical significance of

business lending having a p value close to zero. Large firms rely heavily on business
lending due to their size and have a significant share of financial expenses on their
financial statements with an average value of 14%. An increase of business lending by
1 billion euro (units are in billion euros) could increase by almost 10% the efficiency
of large firms in the food and beverages sector.

Tobit models show different strategic characteristics of firms in the sector. The impact
of levels of food production is negative and statistically significant in the case of
small firms. Higher levels of production require utilization of more assets and higher
scales of economies which cannot be achieved but only from the large firms (for them
the levels of production have a positive effect). Small firms, however, do not have
significant financial expenses and therefore they are not affected strongly by the
business lending levels to the same degree as large firms.

37
Chapter 4. Conclusion

The examination of the viability of firms in the food and beverages industry sector
during the crisis years has pointed us to some valuable conclusions. There are
strategic differences which are visible regarding the effort of firms in the sector to
maintain and increase their efficiency. Small firms are more sensitive to changes in
levels of production than funding since larger firms can produce at a higher level if
needed in the market reducing the relative efficiency of the smaller firms. On the
other hand they are less dependent on large scale funding since they operate on lower
levels of expenses. Their efficiency is more sensitive to technical efficiency as the
Malmquist production index has shown and less on technological progress since they
do not have the necessary scale to invest in new technologies in the same way large
firms do. Small and middle-sized firms benefit more from their inherent flexibility to
address short-term fluctuations and adapt their production potential better to the
changing market. Although they can adapt fast to fluctuations though, they cannot
achieve the economies of scale needed in case of food production increases. On the
other hand large firms value the importance of new technologies in a not so beneficial
economic environment where financial resources are limited. Large firms with the
means to conduct substantial research and development programmes are more
benefited from this approach but also more hit by the bad economic climate due to
lack of flexibility in downsizing or modifying production level to address decreased
demand. The effect of business lending is positive and higher in large firms in the
sector which need these funds to invest in technological progress of production and
increase their efficiency through technology. Middle-sized firms exhibit less
sensitivity to external funding and production levels in comparison to their small and
large counterparts as they exist in the middle of the spectrum and they number the
highest number of firms in the sector. Their efficiency is satisfactory in general but
there is room for improvement and a turn to the adoption of new technologies and
innovation in production would be beneficial in this endeavour.

38
The use of data envelopment analysis and the identification of firm efficiency using
financial ratios has been constantly increasing in popularity. As a closing remark and
further study consideration on the application of the method would include the use of
the models for capital asset pricing models and stock market evaluation. Relations
between stock price in a sector and its relative efficiency could be valuable to the
understanding of market preferences and behaviors.

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