Did Bank Distress Stifle Innovation During the Great Depression?

47 Pages Posted: 25 Aug 2014 Last revised: 29 Sep 2014

See all articles by Ramana Nanda

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

Tom Nicholas

Harvard University - Entrepreneurial Management Unit

Date Written: August 2014

Abstract

We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.

Suggested Citation

Nanda, Ramana and Nicholas, Tom, Did Bank Distress Stifle Innovation During the Great Depression? (August 2014). NBER Working Paper No. w20392. Available at SSRN: https://ssrn.com/abstract=2486342

Ramana Nanda (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

Tom Nicholas

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

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