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A statistical foundation for the measurement of managerial ability

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  • Banker, Rajiv
  • Park, Han-Up
  • Sahoo, Biresh

Abstract

Demerjian, Lev, and McVay (2012) (DLM) provide a conceptual framework for the measurement of managerial ability using data envelopment analysis (DEA). We show that the DLM method provides a consistent estimator of managerial ability. The DLM approach to measuring managerial ability begins with the first stage estimation of firm efficiency in transforming inputs into outputs. The second stage removes the impact of contextual variables on the firm efficiency so that the residuals measure the impact of unobserved managerial ability. We leverage the properties of the DEA estimator (Banker and Natarajan 2008) to show that the DLM approach provides a statistically consistent estimator of the managerial ability’s impact on firm efficiency.

Suggested Citation

  • Banker, Rajiv & Park, Han-Up & Sahoo, Biresh, 2022. "A statistical foundation for the measurement of managerial ability," MPRA Paper 111832, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:111832
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    File URL: https://mpra.ub.uni-muenchen.de/111832/1/MPRA_paper_111832.pdf
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    References listed on IDEAS

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    Cited by:

    1. Biresh K. Sahoo & Kaoru Tone, 2022. "Evaluating the potential efficiency gains from optimal industry configuration: A case of life insurance industry of India," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3996-4009, December.
    2. Alireza Amirteimoori & Biresh K. Sahoo & Saber Mehdizadeh, 2023. "Data envelopment analysis for scale elasticity measurement in the stochastic case: with an application to Indian banking," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-36, December.

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    More about this item

    Keywords

    DEA; Efficiency; Managerial Ability; Simulation;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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