Natural disasters, public attention and changes in capital structure: international evidence

In this study, I examine whether public attention to a natural disaster affects the likelihood of firms using external financing (only debt, only equity, or a mix of debt and equity) following the disaster. The helpful (or harmful) view of public attention predicts that increasing public attention to the disaster can help companies to use (or hinder them from using) external financing following the disaster. For this investigation, I construct two indices: (1) an index of public attention to natural disasters and (2) an index of natural disaster intensity. Consistent with the prediction of the helpful view, the likelihood of using a combination of debt and equity financing in the aftermath of a severe disaster is higher when people pay more attention to it. By contrast, when people pay less attention to severe disasters, firms are more likely to use only debt or equity financing, which confirms the harmful view. I provide evidence that the moderating effect of public attention on the relationship between the likelihood of using external financing and natural disaster intensity varies across types of natural disasters and types of online information sources (websites, online news, images, and YouTube videos). Furthermore, smaller firms that often face difficulties obtaining external financing are more likely to benefit from increased public attention to disasters when they want to use only debt financing and less likely to benefit when using equity financing. Finally, I provide evidence that the substitution of internal funding sources for external sources in the aftermath of a disaster depends on the level of public attention to the disaster.