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Did bank distress stifle innovation during the Great Depression?

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  • Nanda, Ramana
  • Nicholas, Tom

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 & Nicholas, Tom, 2014. "Did bank distress stifle innovation during the Great Depression?," Journal of Financial Economics, Elsevier, vol. 114(2), pages 273-292.
  • Handle: RePEc:eee:jfinec:v:114:y:2014:i:2:p:273-292
    DOI: 10.1016/j.jfineco.2014.07.006
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    Keywords

    Great Depression; Patents; R&D; Bank distress;

    JEL classification:

    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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