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The Effect of Adversity on Process Innovations and Managerial Incentives

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Author Info

  • Dostie, Benoit

    ()
    (HEC Montreal)

  • Jayaraman, Rajshri

    ()
    (European School of Management and Technology (ESMT))

Abstract

This paper asks whether adversity spurs the introduction of process innovations and increases the use of managerial incentives by firms. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in adversity arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference-in-differences estimates indicate that firms responded to adversity by introducing new or improved processes, but did not change their use of managerial incentives. These results suggest that the threat of bankruptcy may provide impetus for improving efficiency.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4261.

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Length: 45 pages
Date of creation: Jun 2009
Date of revision:
Publication status: published as 'Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment' in: Journal of Economics and Management Strategy, 2013, 22 (3), 529–550
Handle: RePEc:iza:izadps:dp4261

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Keywords: efficiency; managerial incentives; natural experiment; process innovation;

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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1268-1290, September.
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  3. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(4), pages 825-52, October.
  4. Vives, Xavier, 2004. "Innovation and Competitive Pressure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4369, C.E.P.R. Discussion Papers.
  5. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1382, C.E.P.R. Discussion Papers.
  6. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  7. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics, University of Munich, Department of Economics 19772, University of Munich, Department of Economics.
  8. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  9. J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers, Center for Economic Studies, U.S. Census Bureau 01-05, Center for Economic Studies, U.S. Census Bureau.
  10. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  11. Vicente Cuñat & María Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," CEP Discussion Papers, Centre for Economic Performance, LSE dp0687, Centre for Economic Performance, LSE.
  12. DeFond, Mark L. & Park, Chul W., 1999. "The effect of competition on CEO turnover1," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 27(1), pages 35-56, February.
  13. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(4), pages 724-46, August.
  14. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," Scholarly Articles 12490416, Harvard University Department of Economics.
  15. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
  16. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1425-1436, September.
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Cited by:
  1. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo Group Munich.

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