Predicting small business demise after a natural disaster: an analysis of pre-existing conditions

Abstract

Few studies of small businesses have addressed demise in post-disaster environments, and the factors that lead to business demise after natural disasters are not well understood. This study explored demise by interviewing a random sample of small business owners whose businesses survived or met demise following Hurricane Katrina. The goal of this study was to determine whether businesses that met demise could be predicted based on pre-existing characteristics of those businesses and their owners. Findings indicated that businesses owned by women, minorities, and veterans were more likely to meet demise. Owners with more industry experience and older businesses were less likely to meet demise, along with larger businesses (number of employees) and service-based businesses. Businesses that had prior disaster experience and prior cash flow problems were also less likely to meet demise post-Katrina, suggesting that prior experiences with some type of adversity may provide knowledge and insight that aid small business owners during subsequent experiences during disaster preparation, response, and recovery periods. Home-based businesses were also less likely to meet demise, whereas businesses located in coastal counties were more likely to meet demise.

The Long-Term Impact of Disaster Loans: The Case of Small Businesses after Hurricane Katrina

“…Previous literature showed that owner's gender makes a difference to the success of their business [13,14]. Female owners were less successful compared to male owners when facing natural disasters [15,16]. In another article, Danes et al [17] found that receiving assistance and resilience were statistically significant for both genders; it was positively associated with males and negatively associated with females.…”

“…Marshall et al [15] found that veteran-owned businesses had higher odds of closing after Hurricane Katrina. Marital status also affects business performance.…”

“…The business owner's personal resilience is also likely to be an important factor for coping with stress that may result from a natural disaster [15]. Researchers in the healthcare area have developed measures of personal resilience.…”

“…One disaster study done by Barman et al [25] showed that business ownership types (whether it is owned or leased), had a statistical significance on the preparedness of disaster. Marshall et al [15] pointed out this way; "legal ownership may represent a management labor resource and variation in demand on the business resources that comes from partners and shareholders as well as the support of multiple families of employees and owners" (p. 339).…”

“…Number of employees represents firm size of the business. The literature found that the size of firm was an important proxy to figure out the available human assets [15]. Dahlhamer and Tierney [11] found that size mattered in coping with disaster: the bigger the better.…”