Earth, wind, water, fire and man: How disasters impact firm births in the USA

Abstract

Most studies on organizational formation are based on trying to understand the role that attitudinal and macroeconomic factors play in the births and deaths of firms. This study sought to understand the role that extreme events or disasters play in this process, particularly, the creation of new firm establishments. We used decade-long panel data on disasters, as well as selected macroeconomic and demographic variables to determine the critical factors driving firm births and deaths. Data were collected from the period 2005 to 2014 and across 366 metropolitan statistical areas in the USA. Firm births and deaths were proxied using establishment entry and exit to better reflect geographical spread of firm activity. Several fixed effect regression models were estimated using different disaster classification schemes. We find very little evidence suggesting a role for disasters in the creation of new firm establishments. We also find that the unemployment rates, recession, and poverty rates all negatively impact the creation of new establishments. We find that a high Asian population, as well as having a high proportion of individuals between the age of 40 and 59 years, was associated with higher establishment entry.