A Hybrid Approach to Evaluate Business Efficiency, Profitability, and Market Valuation: An Empirical Validation

<ns7:p>Background Internal functional capabilities — encompassing marketing, operations, research and development, and human resources — are widely recognized as key determinants of firm competitiveness. However, most existing studies rely on linear regression models that fail to capture nonlinear interdependencies among these capabilities, and few simultaneously assess both profitability-based and market value-based performance outcomes. A methodological gap remains in combining efficiency benchmarking with predictive modeling to evaluate how capability configurations translate into financial and investor-oriented results across diverse industry contexts. Methods This study proposes a hybrid two-stage analytical framework integrating Data Envelopment Analysis and Backpropagation Neural Networks. In the first stage, Data Envelopment Analysis quantifies the relative transformation efficiency of each functional capability using objective multi-input and multi-output configurations. In the second stage, Backpropagation Neural Networks — benchmarked against Ordinary Least Squares Multiple Regression — model the nonlinear relationships between capability efficiency scores and firm performance outcomes. The empirical sample comprises 1,271 publicly listed firms in Taiwan across high-technology, manufacturing, and service industries, drawn from the Taiwan Economic Journal database covering fiscal years 2020 to 2023. Results Backpropagation Neural Networks consistently outperformed regression-based models in predictive accuracy across all three performance dimensions — market value, Tobin’s Q, and stock return. Industry-specific patterns emerged: research and development and human resource capabilities were most critical in high-technology firms, operational capability dominated in manufacturing, and marketing capability was most influential in service firms. Performance-tier segmentation further revealed that high-performing firms maintained a more balanced and strategically coherent deployment of capabilities, whereas low-performing firms exhibited excessive reliance on short-term profitability signals. Conclusions Functional capability configurations differ meaningfully across industries and performance tiers. Effective capability alignment — rather than resource possession alone — is the primary mechanism through which firms achieve superior profitability and favorable market valuation.</ns7:p>