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Tania Babina, Asaf Bernstein, Filippo Mezzanotti, Financial Disruptions and the Organization of Innovation: Evidence from the Great Depression, The Review of Financial Studies, Volume 36, Issue 11, November 2023, Pages 4271–4317, https://doi.org/10.1093/rfs/hhad023
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Abstract
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.