Natural Disaster and Natural Selection

In this paper, we investigate whether a natural selection works for firm exit after a massive natural disaster. By using a unique data set of more than 84,000 firms after the Great Tohoku Earthquake, we examine the impact of firm efficiency on firm bankruptcy both inside and outside the earthquake-affected areas. We find that more efficient firms are less likely to go bankrupt both inside and outside the affected areas, which indicates the existence of the natural selection. However, we also find that firms located inside the earthquake-affected areas are less likely to go bankrupt than those located outside of the areas. We also apply the same methodology to the case of the Great Hanshin-Awaji Earthquake, and find qualitatively similar results.