Modeling the effect of CEO power on efficiency: Evidence from the European non-life insurance market

Purpose – Many factors like CEO (“the chief executive officer”) decision can influence efficiency and productivity in insurance firms. This paper seeks to address this issue. Design/methodology/approach – To test the effect of CEO power on the efficiency and the productivity of the European insurance industries, the authors use the flexible Fourier cost function and they decompose the total factor productivity growth. Findings – The result shows that after the integration of the CEO power score, not only efficiency scores in each country have changed, but also the order of non-life insurance systems. Also, the CEO power influences the growth of productivity and an optimal power of the CEO can allow the insurance firm to be more productive and more efficient. Originality/value – In this paper the authors model a new cost function in which they include the CEO power score; they also decompose the total factor of productivity in which they include the effect of the growth in the CEO power score.