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Are CEOs judged on how cost efficient their firms are?

Månsson, Kristofer ; Qasim, Muhammad LU and Söderberg, Magnus (2025) In Energy Economics 143.
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... (More)
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. (Less)
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author
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organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Inefficiency, Electricity distribution, CEO, Hierarchical modeling, Synthetic difference-in-differences, D22, D24, L94
in
Energy Economics
volume
143
article number
108289
publisher
Elsevier
external identifiers
  • scopus:85218146572
ISSN
0140-9883
DOI
10.1016/j.eneco.2025.108289
language
English
LU publication?
yes
id
cdb99d64-4ada-4364-9267-4c27021a99d0
date added to LUP
2025-02-26 20:01:15
date last changed
2025-06-24 10:44:16
@article{cdb99d64-4ada-4364-9267-4c27021a99d0,
  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.}},
  author       = {{Månsson, Kristofer and Qasim, Muhammad and Söderberg, Magnus}},
  issn         = {{0140-9883}},
  keywords     = {{Inefficiency; Electricity distribution; CEO; Hierarchical modeling; Synthetic difference-in-differences; D22; D24; L94}},
  language     = {{eng}},
  month        = {{02}},
  publisher    = {{Elsevier}},
  series       = {{Energy Economics}},
  title        = {{Are CEOs judged on how cost efficient their firms are?}},
  url          = {{http://dx.doi.org/10.1016/j.eneco.2025.108289}},
  doi          = {{10.1016/j.eneco.2025.108289}},
  volume       = {{143}},
  year         = {{2025}},
}