Diversification and efficiency assessment of Japanese major private railways using data envelopment analysis and the Malmquist index

Passenger transportation in Japan's main metropolitan areas is operated by the JR companies, which were privatized and divested from Japan National Railways (JNR) in 1987 and by 16 major private railway companies with large-scale operations. Although their core business is transportation, the major private railway companies have adopted a strategy of diversification, and they engage, e.g., in real estate and distribution businesses. This study examines the relationship between the degree of business diversification and the production efficiency of Japan's major private railway companies from the perspective of a future business model. To this aim, this study applies data envelopment analysis combined with the Malmquist index to the data of the railway companies from 1987 to 2019. We focus on four phases of activities: cost, operational resource, operational output, and total revenue. This study is the first to analyze the diversified management of Japanese railroad companies by evaluating their production efficiency and its changes over time. The results of the analysis reveal that, while all companies' earnings have generally increased, the less diversified they are, the more they struggle to optimize personnel and other overhead expenses and resources, lowering production efficiency.