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Back to basics: The Comanor–Wilson MES index revisited

Abstract

The present article attempts to investigate the validity of the Comanor–Wilson Minimum Efficient Size (MES) measure. The basic assumption is that firms that have exhausted scale economies are in non-increasing returns to scale. The same firms are also assumed to have a size greater than MES estimated on sales (total turnover), employment or fixed assets. Data Envelopment Analysis (DEA) is used, on a sample of firms in three Greek manufacturing industries, to classify firms in operation according to increasing or non-increasing returns to scale. On the basis of the results of the DEA input oriented model, the MES measure correctly predicts over 85% of the cases. A probit model is applied to those cases that are not identically predicted by MES concerning returns to scale. Results indicate that technical efficiency, size and age are the factors that compel MES to yield the same prediction as the DEA approach.

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Fig. 1

Notes

  1. DEA development is own to Banker et al. (1984) and Färe et al. (1985). For a detailed presentation of the DEA approach see Seiford (1996), Seiford and Zhu (1999) and Cooper et al. (2006)

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Acknowledgements

The authors would like to thank Professor David Audretsch and participants of the 2nd Hellenic Workshop on Productivity and Efficiency Measurement (HEWPEM, (http://hewpem.econ.upatras.gr/) for useful comments on an earlier draft of this work. We are also grateful to two anonymous referees for useful comments and suggestions. All errors and omissions remain our responsibility. This publication arises out of the ‘KARATHEODORIS’ research program No. 1946, financed and administered by the University of Patras’ Research Committee.

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Correspondence to Kostas Tsekouras.

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Tsekouras, K., Dimara, E., Skuras, D. et al. Back to basics: The Comanor–Wilson MES index revisited. Small Bus Econ 32, 111–120 (2009). https://doi.org/10.1007/s11187-007-9081-y

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Keywords

  • Data Envelopment Analysis
  • Greek manufacturing
  • Minimum Efficient Size
  • Returns to scale

JEL Classifications

  • L11
  • L6
  • D24
  • L26