The impact of natural disasters on corporate performance: large sample evidence from China

We examine the causal impact of major natural disasters on corporate performance and innovation activities. Using the EM-DAT disaster database, we analyze three types of natural disasters with the most significant impact on China: earthquakes, floods, and storms. By matching disaster data with the China Industrial Enterprise Database, we find that major natural disasters exert immediate negative shocks on corporate operations, though the specific impacts on financial returns and productivity vary by disaster type. However, in the long run, major natural disasters drive heterogeneous recovery trajectories, though the ultimate improvements in corporate performance and efficiency are highly contingent upon disaster-specific attributes. Using data on patent applications, we discover that natural disasters initially decrease innovation activities in affected areas. Yet, over time, firms in disaster-affected regions innovate more than those in unaffected areas. Mechanism analysis reveals that different types of disasters trigger distinctly divergent recovery paths. Specifically, Floods facilitate firms’ capital upgrading through government financial subsidies and credit support, thereby enhancing long-term efficiency. In contrast, while Storms do not bring external financial support, they compel firms to climb the value chain through technological innovation. Earthquakes, however, result in high costs of restorative reconstruction that crowd out productive resources, leading to a long-term reduction in production efficiency, with only labor-intensive and small- and micro-sized enterprises demonstrating strong survival resilience. This study provides a pragmatic framework for policymakers and business leaders in responding to natural disasters, demonstrating that the strategic alignment of intervention measures with disaster-specific attributes is essential for transforming catastrophic shocks into opportunities for long-term economic resilience and growth.