Estimation of Insurer’s Managerial Ability: A Goal Programming Approach

Abstract

Inter-firm performance differences are influenced by several contextual variables, and managerial ability is one important factor that enables some firms to gain leadership positions in the market and helps them to sustain the advantage over successive time periods. However, managerial ability is the cognitive capability which is not directly observable/measurable. In this article, an indirect estimate of managerial ability under a three-stage approach for 20 Indian general insurance companies based on 120 firm-year observations spread over the period 2012–2013 to 2017–2018 is provided. The three-stage estimation method for the measurement of firm-specific managerial ability includes data envelopment analysis (DEA)-goal programming, pooled regression, residual of the pooled regression, Ordinary Least Squares, and General Additive Model regression. Unlike other studies, in this study, DEA-goal programming method is considered to improve discriminatory power for proper classification of the Indian general insurance companies. The results indicate that the influence is statistically significant.