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Are CEOs judged on how cost efficient their firms are?

Kristofer Månsson, Muhammad Qasim and Magnus Söderberg

Energy Economics, 2025, vol. 143, issue C

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.

Keywords: Inefficiency; Electricity distribution; CEO; Hierarchical modeling; Synthetic difference-in-differences (search for similar items in EconPapers)
JEL-codes: D22 D24 L94 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325001124

DOI: 10.1016/j.eneco.2025.108289

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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