Measuring technical and allocative efficiencies of public accounting firms in Taiwan

What is it about?

In this study, we use Data Envelopment Analysis (DEA) to examine whether public accounting firms in Taiwan are efficient in transforming different types of human resources into service revenues as well as in allocating these types of resources to an optimal mix of services offered to their clients. Analyzing annual survey data on service revenues and human resources from 51 public accounting firms in Taiwan for the period 2015-2016, we find that there are significant allocative inefficiencies in our sample of public accounting firms and these allocative inefficiencies are negatively associated with the proportion of management advisory services. Further, we find a significant improvement in technical efficiencies from 2015 to 2016, but we do not find such improvement in allocative efficiencies.

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Why is it important?

Our findings have important managerial implications. First, public accounting firms seeking improvement of aggregate production efficiencies should attempt to eliminate the allocative inefficiencies. Second, the growth of management advisory services is critical for public accounting firms to improve the allocative efficiencies.

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