Effect of a Positive Construction Sector Demand Shock on Bankruptcy: Evidence from Natural Disasters in France
Tesis, Magíster en Economía, IE-PUC, 2020
Abstract: In this thesis, I used data on insolvency proceedings at the “departement” level, a decree dataset of natural disasters (GASPAR) as well as meteorological observations on precipitations to provide a first evidence on how natural disasters may be generating demand shocks to the construction sector and affecting firms’ insolvency. A Generalized-Difference-in-Difference model is setup and suggests that propensity for insolvency in the construction sector is reduced after the issuance of a natural disaster decree while it is not the case for other sectors. It reduces liquidation filings by 0.109 percentage points from an average of 0.316 while having no effect on reorganization and safeguard proceedings. Moreover, the effect seems to be lasting only one quarter, having no spillover effect on to neighboring “departements”, nor changing employment features. However,parallel trends seem to be valid only for some disasters and once I use actual rainfall as a measure of natural disasters, I find that there is a weaker correlation between rainfall and bankruptcy although still in the same direction. This suggests that establishing a decree, while correlated with meteorological factors, may be partially endogenous to the condition of the construction sector. Nevertheless, natural disasters do appear to provide some positive boost to the construction sector that diminishes the irreliance on bankruptcy.