The Effect of Adversity on Process Innovations and Managerial Incentives
HEC Montreal - Institute of Applied Economics; Institute for the Study of Labor (IZA)
ESMT European School of Management and Technology
IZA Discussion Paper No. 4261
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.
Number of Pages in PDF File: 45
Keywords: process innovation, managerial incentives, efficiency, natural experiment
JEL Classification: L20, O31, M52, J33working papers series
Date posted: July 21, 2009
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