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Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment

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  • Benoit Dostie
  • Rajshri Jayaraman

Abstract

This paper asks whether firms respond to cost shocks by introducing process innovations and increasing the use of managerial incentives. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in costs arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference‐in‐differences estimates indicate that firms responded to the cost shock 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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  • Benoit Dostie & Rajshri Jayaraman, 2013. "Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 529-550, September.
  • Handle: RePEc:bla:jemstr:v:22:y:2013:i:3:p:529-550
    DOI: 10.1111/jems.12024
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