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Short-term shock, long-lasting payment: Evidence from the Lushan Earthquake

Yujue Wang
Dec 2022
摘要
Abrupt catastrophic events bring business risks into firms. The paperintroduces the Great Lushan Earthquake in 2013 in China as an unexpected shockto explore the causal effects on public firms in both the long and short term.DID-PSM methods are conducted to examine the robustness of causal inference.The identifications and estimations indicate that catastrophic shocksignificantly negatively impacts cash flow liquidity and profitability in theshort term. Besides, the practical influences on firms' manufacturing andoperation emerge in the treated group. Firms increase non-business expendituresand retained earnings as a financial measure to resist series risk during theshock period. As the long-term payment, the decline in production factors,particularly in employment level and the loss in fixed assets, are permanent.The earthquake's comprehensive interactions are also reflected. The recoveryfrom the disaster would benefit the companies by raising the growth rate of R&Dand enhancing competitiveness through increasing market share, though theseeffects are temporary.
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