This study investigates the technical efficiency for each industry in the Malaysian manufacturing sector is estimated by using Data Envelopment Analysis (DEA). In order to pursue a balance of innovation between long-term and short-term performance strategy, we integrate the Balance Scorecard (BSC) approach with DEA. Furthermore, this paper looks at the determinants of efficiency using the Tobit regression model. In measuring the level of firms' efficiency and innovation, the wood and wood based products industry is emphasized due to its importance in the economic growth of manufacturing sector. In the wood and wood based products industry, the highest level of technical efficiency was achieved by two sub-sectors i.e. veneer sheets and plywood and laminboard, particle board and other panels board, with the mean value of technical efficiency of 1.081 and 1.097 respectively. Generally, the majority of the manufacturing firms are operating technical inefficiently. The distribution of DEA and DEA-BCS technical efficiency in Malaysian Manufacturing Industries show that most of the industries have the average technical efficiency scores greater than 1.05 with only 7 industries (13.21%) in DEA-BSC model operating at or near to the most optimal productions. © 2015 The Authors. This is an open access article under the terms of the Creative Commons Attribution License 4.0, which allows use, distribution and reproduction in any medium, provided the original work is properly cited. DOI: http://dx.doi.org/10.18533/jefs.v3i03.109
IntroductionPrevious research acceded that there are myriad of definitions and usage of the term innovation (Jain, 2010). Although formal definitions of innovation appear diverse, one common element in all definition of innovation is novelty. For the purpose of this study, innovation is defined as "the commercially successful exploitation of new technologies, ideas or methods through the introduction of new products or process, or through the improvement of existing ones.There is clear evidence that innovation play a crucial role to long term profitability and growth in firms (Freel, 2000). There can be little doubt that today's firms must be able to move in the world of innovation. The successful firms will be firms which fully understand innovative business differs from non innovative business and is able to respond accordingly thereby successfully "being innovative".The importance of manufacturing sector in contributing to Malaysian economic growth is not deniable. With this rapid expansion of the manufacturing sector in the last three decades has transformed Malaysia from an Innovation and technical efficiency … Munisamy et al., JEFS (2015), 03(04), 50-67Journal of Economic and Financial Studies. Page 51agricultural based economy to a rapidly industrializing country (Ministry of International Trade and Industry, 2008) During the period of 1996 to 2005, the trade and economic policy undertook progressive liberalization to achieve the long-term objectives of freer and open trade as well as stren...