Journal Article

Do higher costs spur process innovations and managerial incentives? Evidence from a natural experiment

Journal of Economics and Management Strategy 22 (3): 529–550
Benoit Dostie, Rajshri Jayaraman (2013)
Subject(s): Economics, politics and business environment
Keyword(s): Process innovation, managerial incentives, x-efficiency
JEL Code(s): D22, O31, J33

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 fol- lowing 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.

© 2013 Wiley Periodicals, Inc.

Volume 22
Issue 3
Pages 529–550