Does managerial ability promote firm efficiency? an evidence from Indian banking industry

Managerial Ability (MA) plays a key role in the performance of productive firms especially the optimal utilization of firm resources for facilitating revenue generation and growth. However, MA is a factor that cannot be observed directly. The present study provides an indirect estimation of the MA of Indian private-sector commercial banks based on the estimation of residuals from the regression of firm-specific efficiency scores on several contextual variables. The study is based on 126 bank-year observations spread over 7 years. The results indicate that MA is positively and significantly associated with efficiency from 2014 to 2016 and during 2020-2021 for new private banks, and the result is statistically significant. The new private banks have improved efficiency due to low debt overhang (higher performing asset to total asset ratio), better capital adequacy ratio and more command over the market.