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Are CEOs judged on how cost efficient their firms are?

Author

Listed:
  • Månsson, Kristofer
  • Qasim, Muhammad
  • Söderberg, Magnus

Abstract

This paper investigates whether executive boards consider firm-specific inefficiencies when they change CEOs in the Swedish electricity distribution sector. Firm-level inefficiencies are calculated using data from all Swedish electricity distributors from 2001 to 2022 and a data envelopment analysis (DEA) approach. DEA has advantages over standard financial key performance indicators since it controls for heterogeneity in inputs and outputs. It is also frequently employed by energy regulators to calculate relative cost inefficiencies. Our baseline approach uses a multilevel model and investigates the relationship between inefficiency and CEO between-effects. This analysis shows that 9–15 % of the variation in inefficiency can be attributed to the CEO effect. The second modeling approach quantifies the CEO effect using a synthetic difference-in-differences approach, focusing on firms that have changed CEOs. The results reveal that new CEOs reduce cost inefficiency more when they succeed CEOs who were forced to leave.

Suggested Citation

  • Månsson, Kristofer & Qasim, Muhammad & Söderberg, Magnus, 2025. "Are CEOs judged on how cost efficient their firms are?," Energy Economics, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325001124
    DOI: 10.1016/j.eneco.2025.108289
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    More about this item

    Keywords

    Inefficiency; Electricity distribution; CEO; Hierarchical modeling; Synthetic difference-in-differences;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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