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The Effect of Adversity on Process Innovations and Managerial Incentives

  • Dostie, Benoit

    ()

    (HEC Montreal)

  • Jayaraman, Rajshri

    ()

    (European School of Management and Technology (ESMT))

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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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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  1. Guido Imbens & Jeffrey Wooldridge, 2008. "Recent developments in the econometrics of program evaluation," CeMMAP working papers CWP24/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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  10. Vicente Cuñat & María Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," CEP Discussion Papers dp0687, Centre for Economic Performance, LSE.
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