Efficiency and Book-to-Market Ratios of U.S. Pharmaceutical Firms

Shaowen Hua, Pingjun Jiang, Gary Schneider

Research output: Contribution to journalArticlepeer-review


Using data envelopment analysis (DEA), we calculate sales efficiency for U.S. pharmaceutical firms and find it to be positively associated with those firms’ book-to-market ratios (a measure widely used in the finance literature to estimate the risk and growth potential of firms’ common stock). Thus, we conclude that sales-efficient firms in this industry are, on average, undervalued and suggest that the U.S. pharmaceutical industry is characterized by firms making off-balance sheet investments, which we argue leads to efficiency during our sample years (2009-2015). We also conduct longitudinal analyses and conclude that firms in our sample with smaller asset levels are more efficient. Finally, we conduct a slack analysis, which concludes that most of the overvalued companies exhibit inefficiencies in their utilization of research and development costs and selling, general, and administrative costs. Fewer of those firms exhibit inefficient utilization of their costs of goods sold.
Original languageAmerican English
JournalJournal of Applied Business and Economics
StatePublished - Jun 20 2022


  • book-to-market ratio
  • data envelopment analysis (DEA)
  • off-balance sheet investment
  • salesefficiency
  • slack analysis
  • U.S. Pharmaceutical Industry


  • Business
  • Accounting
  • Management Sciences and Quantitative Methods

Cite this