Financial Disruptions and the Organization of Innovation: Evidence from the Great Depression, Review of Financial Studies
We examine innovation following the Great Depression using data on a century’s worth of U.S. patents and a difference-in-differences design that exploits regional variation in the crisis severity. Harder-hit areas experienced large and persistent declines in independent patenting, mostly reflecting the disruption in access to finance during the crisis. This decline was larger for young and inexperienced inventors and lower-quality patents. In contrast, innovation by large firms increased, especially among young and inexperienced inventors. Overall, the Great Depression contributed to the decline in technological entrepreneurship and accelerated the shift of innovation into larger firms.
Filippo Mezzanotti, Asaf Bernstein, Tania Babina
Mezzanotti, Filippo, Asaf Bernstein, and Tania Babina. 2022. Financial Disruptions and the Organization of Innovation: Evidence from the Great Depression. Review of Financial Studies.LINK