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The Effect of Adversity on Process Innovations and Managerial Incentives

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  • Benoit Dostie
  • Rajshri Jayaraman

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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File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2009/CIRPEE09-23.pdf
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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0923.

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Date of creation: 2009
Date of revision:
Handle: RePEc:lvl:lacicr:0923

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

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  1. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  2. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  3. 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.
  4. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
  5. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  6. Imbens, Guido W. & Wooldridge, Jeffrey M., 2008. "Recent Developments in the Econometrics of Program Evaluation," IZA Discussion Papers 3640, Institute for the Study of Labor (IZA).
  7. Vives, Xavier, 2004. "Innovation and Competitive Pressure," CEPR Discussion Papers 4369, C.E.P.R. Discussion Papers.
  8. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, 09.
  9. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
  10. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
  11. 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, vol. 66(3), pages 529-54, July.
  12. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1999. "Competition, financial discipline and growth," ULB Institutional Repository 2013/9619, ULB -- Universite Libre de Bruxelles.
  13. DeFond, Mark L. & Park, Chul W., 1999. "The effect of competition on CEO turnover1," Journal of Accounting and Economics, Elsevier, vol. 27(1), pages 35-56, February.
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Cited by:
  1. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," Quantitative Macroeconomics Working Papers 20906, Hamburg University, Department of Economics.

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