Fiscal Constraints, Disaster Vulnerability, and Corporate Investment Decisions

77 Pages Posted: 10 Apr 2020 Last revised: 4 Nov 2024

See all articles by Nicola Maria Fiore

Nicola Maria Fiore

Bocconi University - Department of Accounting

Thorsten Martin

Frankfurt School of Finance & Management

Florian Nagler

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

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

Suggested Citation

Fiore, Nicola Maria and Martin, Thorsten and Nagler, Florian, Fiscal Constraints, Disaster Vulnerability, and Corporate Investment Decisions (November 04, 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

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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