Typhoons’ effect, stock returns, and firms’ response: Insights from China

This paper examines the impact of typhoons in China on the stock returns of Chinese A-share listed firms and the responses of their managers. Based on a sample of Chinese A-share listed companies from 2003 to 2018, we find that the occurrence of typhoons causes significant negative effects on the Chinese stock market, both economically and statistically. We use an event study approach to test the impact of typhoons directly, and we sort the stocks into different portfolios to examine the sensitivity of the typhoons’ effect to different factors. We also investigate the responses of firms’ management to damaging disasters using a difference-in-differences method with multiple time periods. We discover that firms in the neighborhood area are willing to take precautions, including decreasing the current debt to total debt ratio and increasing the ratio of long-term borrowing financing to total assets. Furthermore, firms’ overreactions will disappear as the number of attacks increases, and the rationality of this overreaction needs further research.