Nexus between Technical Efficiency and Financial Sustainability: Evidence from Small Scale Sunflower Oil Processing Firms in Tanzania

Abstract

Studies on technical efficiency and financial sustainability of firms respectively, have captured the attention of many scholars in both developed and developing economies over several decades. There are patchy empirical evidences however, that link technical efficiency and financial sustainability of small scale agro-processing firms in the context of developing economies like Tanzania. Sunflower Oil Processing Firms are of no exception as the sub-sector is dominated by small scale firms with no well documented relationship between technical efficiency and their financial sustainability. This study was set to determine the relationship between technical efficiency and financial sustainability while controlling for staff productivity. The study used firm level cross-sectional data collected from 219 sunflower oil processing firms randomly selected in Dodoma and Singida regions. A Multiple Linear Regression Model was used in analysing the data. Technical efficiency scores were estimated using Stochastic Frontier Analysis (SFA) model. It was found that there exists a relationship between technical efficiency and financial sustainability of sunflower oil processing firms in Tanzania. The higher the technical efficiency the more Sunflower Oil Processing Firms will be financially sustainable. The findings of this study imply that improving technical efficiency levels is a pre-requisite for financial sustainability of Sunflower oil processing firms in Tanzania.