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The Effect of Adversity on Process Innovations and Managerial Incentives

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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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  • Benoit Dostie & Rajshri Jayaraman, 2009. "The Effect of Adversity on Process Innovations and Managerial Incentives," Cahiers de recherche 09-06, HEC Montréal, Institut d'économie appliquée.
  • Handle: RePEc:iea:carech:0906
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    File URL: http://www.hec.ca/iea/cahiers/2009/iea0906_bdostie.pdf
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    1. 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, pages 701-728.
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    7. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
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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.

    More about this item

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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