The Effect of Adversity on Process Innovations and Managerial Incentives

48 Pages Posted: 10 Jun 2009 Last revised: 20 Jul 2009

See all articles by Benoit Dostie

Benoit Dostie

HEC Montreal - Institute of Applied Economics; IZA Institute of Labor Economics

Rajshri Jayaraman

ESMT European School of Management and Technology

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Date Written: June 2, 2009

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.

Keywords: process innovation, managerial incentives, efficiency, natural experiment

JEL Classification: L20, O31, M52, J33

Suggested Citation

Dostie, Benoit and Jayaraman, Rajshri, The Effect of Adversity on Process Innovations and Managerial Incentives (June 2, 2009). ESMT Working Paper No. 09-002, Available at SSRN: https://ssrn.com/abstract=1416602 or http://dx.doi.org/10.2139/ssrn.1416602

Benoit Dostie

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada
514-340-6453 (Phone)
514-340-6469 (Fax)

HOME PAGE: http://www.hec.ca/profs/benoit.dostie.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Rajshri Jayaraman (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin, Berlin 10178
Germany

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