Abstract

This paper measures the long-term effects of large financial shocks on the individual propensity to be an entrepreneur. We use a difference-in-differences analysis on a dataset that spans 110 years to examine individual decisions to engage in entrepreneurship in local economies following the Great Depression. The results reveal that high bank distress during the Great Depression reduced the local supply of entrepreneurs by 1.3 percentage points per decade between 1930 and 2010 compared to areas that had lower levels of bank distress. The results are driven by entrepreneurs in high education and high earnings occupations. Our findings suggest that resolving local financial distress induced by the current Great Recession has long-term implications for the distribution of entrepreneurship across the US.

Citation

Babina, Tetyana, and Lizzy Berger. "When Finance Leaves Does Enterprise Follow? The Lasting Impact of Bank Distress on Entrepreneurship." Columbia Business School, 2017.

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