Risk without strike: Nuclear crisis and corporate investment

Abstract

While prior works of literature have noted that a crisis brings in not only a strike but also risk, empirical studies on crisis management are largely focusing on the impact of the strike. In this study, we estimate the pure effect of disaster risk on corporate decisions by using the setting of the North Korea nuclear crisis, which brought risk but no actual strike to the neighboring countries. We find that the nuclear tests are significant events for corporate investments and the risk of these tests will lead firms to postpone their long-term investments. The negative impact spreads from the test site and dwindles when firms locate further away, and the geodesic distance rather than the driving distance to the test site matters. Our further analyses show that the negative impact on corporate investment decisions is channeled by the fear of environmental pollution, instead of the geopolitical concern like the outbreak of a war.