Multidirectional Dynamic Inefficiency Analysis: An Extension to Include Corporate Social Responsibility

This chapter contributes to research on the inefficiency measurement by developing a method for evaluating inefficiency taking into account firms’ corporate social responsibility (CSR) engagement. The method is based on the dynamic multidirectional inefficiency analysis (dynamic MEA) in which inefficiency is reached through adjustments in inputs, outputs and investments in proportion to the improvement potential defined by an ideal input–output-investment point. While the idea of the inclusion of CSR within the formal production framework is not new, its introduction through dynamic MEA method provides a novel contribution to this field of research. The empirical application focuses on European firms in three industries (offering capital, consumption, and other goods) for the period 2010–2017. The results of this study show that the largest source of inefficiency were investments, no matter which industry was considered. Also, the study finds the lowest dynamic inefficiencies for other industry, followed by consumption, and finally capital, which could be related to different pressures put by the firms’ stakeholders on CSR engagement within specific industries.