Impact of Disasters on Firms in Different Sectors: Implications for Supply Chains

Disasters keep damaging infrastructure, disrupting supply chains and affecting firm profitability. There is an urgent need for better understanding of disaster impact on supply chains but very few publications address this issue. This exploratory study takes an indirect approach and investigates disaster impact on firms in various industry sectors. This approach allows us to take full advantage of large secondary data bases of firm and disaster data in order to analyze the impact of over 3,500 disasters on more than 100,000 firm-year observations over 15 years. Our results indicate that disasters impact all sectors within a supply chain. We found that damage by windstorms and floods seem to be dramatically different from that of an earthquake, providing evidence against the all-hazards approach. We also show that the impact of floods on total asset turnover of a firm is dependent on the firm's position in the supply chain. We found that while upstream partners enjoy a positive impact, downstream partners have to plan for the opposite. Supply chain managers can use our results to better understand disaster impact on their business. Our study suggests a supply chain–wide mitigation strategy rather than a company-specific one.