Community & Aftershock: New Venture Founding in the Wake of Natural Disasters with a High Death Toll

Abstract

Management scholars, in both Organization Theory (OT) and Organizational Behavior (OB), have recently started to examine how natural disasters affect new venture founding, and rightly so. According to the United Nation’s Security Council, natural disasters will pose the single most important threat to social stability in the upcoming decades. Given the importance of entrepreneurship to social stability (e.g., by providing employment for large swaths of the population), understanding how natural disasters affect entrepreneurial activity can shed light into the broader socioeconomic consequences of these natural phenomena. However, the existing literature offers competing theoretical perspectives and empirical results regarding the effect of natural disasters on new venture creation. This study advances the management literature on the topic by examining, the under-researched question of, how disaster-induced human losses affect new venture founding, while empirically controlling for the other major type of losses caused by these natural phenomena, i.e., material losses, which have been the focus of most existing work. In doing so, this study underscores the need for a nuanced theoretical perspective on the impact of natural disasters on entrepreneurship. Specifically, we build on the extant social psychology literature to theorize that disaster-induced fatalities will have a negative effect on new venture founding in a community afflicted by such an event, but that community collective-level social capital can help alleviate this effect. We test and find empirical support for our theory in the context of all new venture foundings in the U.S. between 1991 and 2018.