Financial performance evaluation of Japanese manufacturing industries: A combined use of DEA discriminant analysis with principal component analysis

This study describes a practical use of DEA discriminant analysis (DEA-DA), combined with principal component analysis, to predict corporate bankruptcy in Japanese manufacturing industries. DEA-DA is useful for classifying non-default and default firms. We applied DEA-DA to the classification of Japanese machinery and electrical equipment industries based upon financial performance. The DEA-DA application identifies that research and development (R&D) expenditure makes a positive impact on the corporate performance of Japanese machinery industry, but it yielded a negative impact on Japanese electrical equipment industry.