Fiscal Constraints, Disaster Vulnerability, and Corporate Investment Decisions

82 Pages Posted: 10 Apr 2020 Last revised: 11 Jan 2024

See all articles by Nicola Maria Fiore

Nicola Maria Fiore

Bocconi University - Department of Accounting

Thorsten Martin

Frankfurt School of Finance & Management; IGIER - Innocenzo Gasparini Institute for Economic Research; Bocconi University; HEC Paris

Florian Nagler

Bocconi University; Centre for Economic Policy Research (CEPR); IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: January 10, 2024

Abstract

This paper empirically studies the role of fiscal constraints for disaster vulnerability and investment decisions in a global sample of firms. We build novel firm-level measures of exposure to fiscal constraints based on the sales distributions of firms across countries. This approach allows us to exploit variation among firms headquartered in the same country and operating in the same industry. During disasters, more exposed firms become riskier, as evidenced by an increase in their market comovement, coupled with discussions on fiscal constraints risk during earnings conference calls. Pre-disaster, firms with larger exposures to fiscal constraints realize higher returns, use higher discount rates in investment decisions, and invest less in tangible capital and R&D. Our findings suggest that fiscal constraints affect long-term growth through a risk-based disaster-vulnerability channel.

Keywords: Fiscal constraints, sovereign debt, disaster, textual analysis, discount rates, investment decisions

JEL Classification: F30, G12, G14, G15, H12, H50, H63

Suggested Citation

Fiore, Nicola Maria and Martin, Thorsten and Nagler, Florian, Fiscal Constraints, Disaster Vulnerability, and Corporate Investment Decisions (January 10, 2024). Available at SSRN: https://ssrn.com/abstract=3572839 or http://dx.doi.org/10.2139/ssrn.3572839

Nicola Maria Fiore

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Thorsten Martin

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://https://sites.google.com/view/thorstenmartin

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Bocconi University

Via Sarfatti, 25
Milan, MI 20136
Italy

HEC Paris

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Florian Nagler (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/site/floriannagler/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Milan, MI 20136
Italy

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