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The Effect of Adversity on Process Innovations and Managerial Incentives

  • Benoit Dostie
  • Rajshri Jayaraman

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.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-06/cesifo1_wp2684.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2684.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2684
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  1. Vives, Xavier, 2005. "Innovation and Competitive Pressure," Department of Economics, Working Paper Series qt1s1059vr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. 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).
  3. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
  4. Vicente Cuñat & María Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," CEP Discussion Papers dp0687, Centre for Economic Performance, LSE.
  5. Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc.
  6. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  7. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  8. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
  9. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 1999. "Competition, Financial Discipline and Growth," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 825-852.
  10. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
  11. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics 19772, University of Munich, Department of Economics.
  12. 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.
  13. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
  14. 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.
  15. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
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