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Natural selection: firm performance following a catastrophic earthquake

In: Resilience and Urban Disasters

Author

Listed:
  • Richard Fabling
  • Arthur Grimes
  • Levente Timar

Abstract

The Canterbury (New Zealand) earthquakes in September 2010 and February 2011 caused major upheaval to the region. The second quake killed 185 people, forced many from their homes, and led to a prolonged closure of the central business district of the region’s largest city, Christchurch. We examine the consequential effects on business in the region, paying particular attention to heterogeneity in firm-level outcomes. This examination provides insights into factors that underlie firm resilience in the aftermath of a shock. We quantify substantial variation in firm outcomes by industry and by location. In addition, we show that firms’ prior financial viability heavily influenced their chance of survival. Conditional on continuing to operate, average profitability returned to pre-quake levels quickly. Taken together, these effects support economic models in which firm exit is driven by selection on profitability and in which shocks are part of the process of creative destruction in which the strongest firms survive.

Suggested Citation

  • Richard Fabling & Arthur Grimes & Levente Timar, 2019. "Natural selection: firm performance following a catastrophic earthquake," Chapters, in: Resilience and Urban Disasters, chapter 2, pages 30-50, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:18379_2
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    Cited by:

    1. Owen Sally & Noy Ilan & Pástor-Paz Jacob & Fleming David, 2021. "Measuring the Impact of Insurance on Recovery after Extreme Weather Events Using Nightlights," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 15(2), pages 169-199, July.
    2. Jack Clampit & Dinesh Hasija & Michael Dugan & John Gamble, 2021. "The Effect of Risk, R&D Intensity, Liquidity, and Inventory on Firm Performance during COVID-19: Evidence from US Manufacturing Industry," JRFM, MDPI, vol. 14(10), pages 1-16, October.
    3. Sally Owen & Ilan Noy & Jacob Pástor-Paz & David Fleming, 2019. "EQC and extreme weather events (part 2): Measuring the impact of insurance on New Zealand landslip, storm and flood recovery using nightlights," Working Papers 19_19, Motu Economic and Public Policy Research.

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