Alternative Finance after Natural Disasters

Abstract

In this paper, we show that alternative finance (e.g. private equity, crowdfunding and venture capital) is a key source of funding for firms that are affected by natural disasters. Using data on a large sample of US companies from 2010 to 2019, we provide robust empirical evidence that private funding increases within 3 months after the occurrence of a natural disaster. Panel data analysis at state level shows that extreme events cause at least an average increase of funding from alternative finance by 47% relative to firms in non-affected states. We also find that size, reliance on physical assets and age improve access to alternative finance after adverse natural events. Our empirical evidence highlights the key role of private lenders in providing financial resources to affected firms after extreme exogenous events. Disclaimer: This paper's findings, interpretations and conclusions are entirely those of the authors and do not necessarily represent the views of the World Bank, their Executive Directors or the countries they represent. We thank the editors of the British Journal of Management special issue: Douglas Cumming, Pawan Budhar and Geoffrey Wood. We would also like to thank the two anonymous referees for providing us with very constructive feedback and valuable comments. We thank for useful comments the participants at the conference on 'Entrepreneurial Finance in Honour of Mike Wright' and especially our discussant, Maimuna Akter.

Entrepreneurial finance in Europe and the Russian war against Ukraine

“…Comparing publicly-listed and privately-held firms, they find that publicly-listed firms often face price rationing while privately-held firms often face quantity-rationing. In a recent study, Baltas et al (2022) show that alternative finance (comprising PE, VC, and crowdfunding) is an important source of funding for firms hit by a natural disaster. The use of alternative finance is found to increase after the occurrence of a natural disaster-the effect being stronger for larger and older firms as well as firms with a higher reliance on physical assets.…”

Kahramanmaraş Merkezli Depremler Sonrası İçin Akademik Öneriler

“…Örneğin, birçok işletme doğal afetler sonrasında devlet destekli kredilere başvurmakadır (Brancati, 2007;Noy, Okubo, Strobl ve Tveit, 2022;Siembieda, Johnson ve Franco, 2012). Baltas, Fiordelisi ve Mare (2022), çalışmalarında doğal afetler sonrası firmaların fon akışında meydana gelen değişimlerini araştırmışlardır. Doğal afetler sonrasında meydana gelen maddi zararın teminat kullanımını engellediğinden krediler üzerindeki olumsuz etkisinin firmaların finansal sıkntılarını şiddetlendirdiğini ele almışlardır.…”

Editorial: Entrepreneurial Finance and the Legacy of Mike Wright

“…Two papers in the issue consider the matching between different entrepreneurs and different investors. First, Baltas, Fiordelisi and Mare (2022) explore how and when firms that have been subject to the adverse effects of natural disasters turn to alternative investors for new sources of funds. Looking at US data, they find that natural weather events result in an increased reliance on such investors, given a lack of capital to secure funds from mainstream lenders.…”