Working Paper: NBER ID: w20392
Authors: Ramana Nanda; Tom Nicholas
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.
Keywords: bank distress; innovation; Great Depression; R&D; financial sector
JEL Codes: G21; N22; O30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bank distress (G28) | Reduction in quantity of patents filed by private firms (O34) |
| Bank distress (G28) | Decrease in total citations to patents (O38) |
| Bank distress (G28) | Drop in average citations per patent (O39) |
| Bank distress (G28) | Shift towards more incremental innovation activities (O31) |
| Bank distress (G28) | Disruption of financial intermediation necessary for high-risk R&D projects (O16) |
| Bank distress (G28) | Negative effects more pronounced for firms in capital-intensive industries (G32) |