We thank Klaus Schmidt for many insightful discussions and two referees as well as seminar participants in Munich, Berlin, and Naples for useful comments.
Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment
Article first published online: 10 JUL 2013
© 2013 Wiley Periodicals, Inc.
Journal of Economics & Management Strategy
Volume 22, Issue 3, pages 529–550, Fall 2013
How to Cite
Dostie, B. and Jayaraman, R. (2013), Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment. Journal of Economics & Management Strategy, 22: 529–550. doi: 10.1111/jems.12024
- Issue published online: 10 JUL 2013
- Article first published online: 10 JUL 2013
This paper asks whether firms respond to cost shocks by introducing process innovations and increasing the use of managerial incentives. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in costs arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference-in-differences estimates indicate that firms responded to the cost shock 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.