Fiscal Constraints, Disaster Vulnerability, and Corporate Investment Decisions
77 Pages Posted: 10 Apr 2020 Last revised: 4 Nov 2024
Date Written: November 04, 2024
Abstract
This paper empirically examines how government fiscal constraints influence disaster vulnerability and investment decisions in a global sample of firms. We develop a novel firm-level measure of exposure to fiscal constraints based on firms' sales distributions across countries and combine it with computational linguistics tools applied to earnings calls to measure perceived risk. Using a difference-in-differences framework, we find that firms with greater exposure to fiscal constraints experience a stronger increase in perceived risk---specifically related to fiscal constraints---during disaster. Pre-disaster, these firms exhibit higher perceived risk and discount rates, translating into reduced investment in tangible capital and R&D. Our findings suggest that fiscal constraints affect growth through a risk-based disaster vulnerability channel.
Keywords: Government fiscal constraints, disaster, discount rates, corporate investment, textual analysis, earnings conference calls
JEL Classification: F30, G12, G14, G15, H12, H50, H63
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