Community and aftershock: New venture founding in the wake of deadly natural disasters

The entrepreneurship literature has advanced our understanding of how natural disasters affect new venture founding in their wake. However, despite providing valuable insights, most existing studies focus on theoretical mechanisms that, explicitly or implicitly, invoke material losses or do not hone in on the theoretical effect of human losses caused by these events. This is an important omission because the social psychology literature suggests that individual reactions to human death are not only stronger than (i.e., higher in scale), but qualitatively different (i.e., infinitely stronger) from, those involving other types of losses. The present study addresses this oversight by drawing from the social psychology literature on the emotive and cognitive heuristics (e.g., the incidental emotion and availability biases) induced by human death and developing and testing a theory of how the death toll caused by natural disasters decreases new venture founding by inducing irresolvable uncertainty. Moreover, the study draws from research on how strong pre-disaster local participation in voluntary associations—by increasing the social, symbolic, cultural and material resources in a community—protects against such negative effects. Contributions to both the post-disaster venturing and the broader resiliency literatures are discussed.

Executive summary

Natural disasters are on the rise, and the United Nations predicts that these phenomena will pose the single most important threat to social, political and economic stability in the upcoming decades. Entrepreneurship holds great promise for helping regions recover from the havoc wreaked by these events. However, much of the existing entrepreneurship research has not focused sufficiently on how the human death toll caused by natural disasters affects subsequent new venture creation. This is an important question because the existing psychology literature suggests that human death elicits disproportionately high negative individual reactions, which may lead prospective entrepreneurs in afflicted regions to stop or delay their plans to start new ventures, precisely at the time when those ventures are needed the most to help with regional recovery. This study fills this gap by examining how the death toll caused by natural disasters affect new venture creation in counties in the United States between 1991 and 2018. The study finds that the death toll caused by natural disasters in a county has a negative effect on post-disaster venturing in that county, but that strong pre-disaster participation in voluntary associations (e.g., the Girl Scouts, parent teacher associations, etc.) protects against this effect because it allows communities to work together to overcome the challenges posed by these deadly events. This last result highlights the importance that policymakers at every government level and local communities realize the critical role that local participation in voluntary associations prior to deadly disasters can have in fostering entrepreneurship after such events, thereby accelerating regional recovery.