Abstract

This paper empirically examines how government fiscal constraints influence disaster vulnerability and investment decisions in a global sample of firms. We develop a novel firm-level measure of exposure to fiscal constraints based on firms' sales distributions across countries and combine it with computational linguistics tools applied to earnings calls to measure perceived risk. Using a difference-in-differences framework, we find that firms with greater exposure to fiscal constraints experience a stronger increase in perceived risk---specifically related to fiscal constraints---during disaster. Pre-disaster, these firms exhibit higher perceived risk and discount rates, translating into reduced investment in tangible capital and R&D. Our findings suggest that fiscal constraints affect growth through a risk-based disaster vulnerability channel.