Ramana Nanda

16 Results


Financial Development and Technology Diffusion

Most scholarship looking at the role of financial market development in productivity and economic growth has tended to focus on the role of better developed financial markets in allocating capital efficiently across investment opportunities. In this paper, the authors provide evidence for another key role played by well-developed financial markets: reducing the frictions associated with the adoption and the diffusion of new technologies. Using a large dataset that covers the diffusion of 16 major technologies across 55 countries and 130 years, the authors examine whether greater depth in the banking sector leads to faster diffusion of these new technologies. Results provide compelling evidence that banking sector depth facilitates the faster diffusion of more capital intensive technologies. This effect operates in the early stages of diffusion and in the early adopters of technology. Overall, the evidence points to the importance of capital markets for the experimentation required to overcome the initial hurdles of adoption and diffusion. Read More

Housing Collateral, Credit Constraints, and Entrepreneurship-Evidence from a Mortgage Reform

One of the strongest findings in studies of entrepreneurship is the clear positive correlation between personal wealth and the propensity to engage in entrepreneurship. One study, for example, has shown that entrepreneurs comprise just under 9 percent of households in the United States, but hold about 40 percent of total net worth. The most common explanation for this correlation is that credit constraints pose an important barrier to entry for less wealthy individuals. However, others have questioned the degree to which financing constraints are barriers to entrepreneurship, particularly in advanced economies where firms have adequate access to capital. In this paper, the authors consider a unique mortgage reform in Denmark to study how increasing access to credit through the unlocking of housing collateral for personal loans had an impact on entrepreneurship. Findings show that the reform affected the ability to draw on debt backed by home equity. However, despite the positive and statistically significant effect of relaxing credit constraints on entrepreneurship, the magnitudes are small. Furthermore, an important reason for the small magnitude was that the marginal business founded by those who benefited from the reform was of lower quality, where the new entrants failed within two years of entry. Overall, the results paint a more nuanced picture of the extent to which financing constraints are important in settings with well-developed credit markets, and the role that home equity can play in alleviating these. Read More

Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts

In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant-making bodies. Despite the growing role of crowds in making decisions once left to experts, however, we know little about how crowds and experts may differ in their ability to judge projects, or even whether crowd decision-making is based on any rational criteria at all. Drawing on a panel of national experts and data from the crowd funding platform Kickstarter, this study offers the first detailed comparison of crowd and expert judgment. There are three main findings. First, on average, there is a remarkable degree of congruence between the realized funding decisions by crowds and the evaluation of those same projects by experts. Second, there seems to be an "art" to raising money from crowds, one that may be systematically different from that of raising money from experts. Third, crowd funded projects are equally likely to have delivered on budget, result in organizations that continue to operate, and be successful in other ways. Overall, crowd funding appears to allow projects the option to receive multiple evaluations and reach out to receptive communities that may not otherwise be represented by experts. Read More

Teaching Climate Change to Skeptics

The Business and Environment Initiative at Harvard Business School aims to shift the debate about climate change from a political discussion to a practical conversation about risk and reward. Closed for comment; 36 Comments posted.

Crowdfunding a Poor Investment?

Crowdfunding promises to democratize funding of startups. But is that necessarily a good thing? Entrepreneurial finance experts Josh Lerner, Ramana Nanda, and Michael J. Roberts on the promises and problems with the newest method for funding small businesses. Closed for comment; 12 Comments posted.

Investment Cycles and Startup Innovation

In this paper, HBS professors Nanda and Rhodes-Kropf examine how the environment in which a new venture was first funded relates to its ultimate outcome, by specifically looking at what happened to venture capital-backed startups funded between 1980 and 2004. Results show that firms that were funded in "hot" markets were more likely to fail but created more value and had more highly cited patents when they succeeded. These results suggest that that flood of capital in hot markets lowers the cost of experimentation for early stage investors, and therefore allows them to fund more novel projects in periods of heated financial activity. Read More

Will the Japan Disaster Remake the Landscape for Green Energy in Asia?

Entrepreneurs at the recent Asia Business Conference at Harvard Business School said the disaster in Japan could accelerate the move toward "green" energy sources in Asia, opening opportunities. Read More

Financing Risk and Bubbles of Innovation

While start-up firms are key to any technological revolution, they also run a high risk of failure. To that end, investors often provide limited capital in several careful stages, gaining confidence in a firm before doling out another round of funding. However, these investors still face the possibility that other investors won't provide follow-on funding, even when the firm's prospects remain sound. That's a big risk for individual investors who can't afford to fund a new firm all by themselves, and whose investment will flounder if others don't invest, too. Research by HBS professors Ramana Nanda and Matthew Rhodes-Kropf explores why future investors may not fund the project at its next stage even if the fundamentals of the project have not changed. Read More

Financing Constraints and Entrepreneurship

Financing constraints are one of the biggest concerns impacting potential entrepreneurs around the world. Given the important role that entrepreneurship is believed to play in the process of economic growth, alleviating financing constraints for would-be entrepreneurs is also an important goal for policymakers worldwide. In this paper HBS professors William R. Kerr and Ramana Nanda review two major streams of research examining the relevance of financing constraints for entrepreneurship. They then introduce a framework that provides a unified perspective on these research streams, thereby highlighting some important areas for future research and policy analysis in entrepreneurial finance. Read More

Banking Deregulations, Financing Constraints and Firm Entry Size

How do financing constraints on new start-ups affect the initial size of these new firms? Since bank debt comprises the majority of U.S. firm borrowings, new ventures are especially sensitive to local bank conditions due to their limited options for external finance. Liberalization in the banking sector can thus have important effects on entrepreneurship in product markets. As HBS professors William Kerr and Ramana Nanda explain, the 1970s through the mid-1990s was a period of significant liberalization in the ability of banks to establish branches and to expand across state borders, either through new branches or through acquisitions. Using a database of annual employment data for every U.S. establishment from 1976 onward, Kerr and Nanda examine how U.S. branch banking deregulations impacted the entry size of new start-ups in the non-financial sector. This paper is closely related to their prior work examining how the deregulations impacted the rates of startup entry and exit in the non-financial sector. Read More

Bank Structure and the Terms of Lending to Small Businesses

Access to "soft information" and the greater sensitivity of decentralized banks to the local institutional environment can have both positive and negative consequences for small firms. Hence there may be a dark side to decentralized bank lending in certain instances. This paper argues that the same ability of decentralized banks to act on soft information also makes them more responsive to the local environment when setting terms of their loans. While this can be beneficial for small businesses in competitive markets, it also implies that the organizational structure of decentralized banks might allow them to better exploit their market power in concentrated banking markets by restricting credit or charging higher interest rates from small businesses. Read More

Encouraging Entrepreneurs: Lessons for Government Policy

Who you know and how much money is in your pocket have always been significant contributors to entrepreneurial success. New research by Harvard Business School professor Ramana Nanda explores new wrinkles in this age-old formula—and how government policy may impact entrepreneurship. Read More

Peer Effects and Entrepreneurship

How do your coworkers affect your decision to become an entrepreneur? The vast majority of entrepreneurs launch their new ventures following a period of employment in established organizations. To date, factors such as the degree of bureaucracy that individuals have experienced have been shown to shape their likelihood to go into business for themselves. But socialization matters, too. Nanda and Sørensen show that the career experiences of coworkers shape both the information and the resources available to prospective entrepreneurs, as well as the value that individuals attach to entrepreneurial activity as a career choice. Read More

Cost of External Finance and Selection into Entrepreneurship

Entrepreneurs are, on average, significantly wealthier than people who work in paid employment. Research shows that entrepreneurs comprise fewer than 9 percent of households in the United States but they hold 38 percent of household assets and 39 percent of the total net worth. This relationship between personal wealth and entrepreneurship has long been seen as evidence of market failure, meaning that talented but less wealthy individuals are precluded from entrepreneurship because they don't have sufficient wealth to finance their new ventures. Nanda studied how changes in the cost of external finance affected the characteristics and likelihood of individuals becoming entrepreneurs. He finds that market failure accounts for only a small fraction of the relationship between personal wealth and entrepreneurship in advanced economies such as the U.S. Read More

Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry

Several recent studies have highlighted the important role that cross-border ethnic networks might play in facilitating entrepreneurship in developing countries. Little is known, however, about the extent to which domestic entrepreneurs rely on the diaspora and whether this varies systematically by the characteristics of the entrepreneurs or their local business environment. The Indian diaspora is estimated at over 18 million people spanning 130 countries. Given that formal institutions in India remain weak and hence the informal barriers to trade are higher, do diaspora networks serve as substitutes to the functioning of the local business environment? Do they help entrepreneurs to circumvent the barriers to trade arising from imperfect institutions? This study examines the extent to which software entrepreneurs within India vary in their reliance on expatriate networks. Read More

Banking Deregulation, Financing Constraints and Entrepreneurship

What effect does an increase in banking competition have on the entry of start-ups? In particular, does an increase in banking competition have a differential effect on the entry of start-ups relative to the opening of new establishments by existing firms? The U.S. branch banking deregulations provide a useful laboratory for studying how banking competition affects small businesses. Prior to 1970, all but twelve states had stringent restrictions on the ability of banks to open new branches or to acquire the branches of other banks within the state; beginning in the 1970s and until 1994, all but two states removed these restrictions. In this research, Kerr and Nanda studied the entry of newly incorporated businesses between 1976 and 1999 using detailed data collected by the U.S. Census Bureau. Their findings matter for understanding how reforms that affect the financing environment may improve the real economy through the reallocation of resources in the non-financial sectors. Read More