Post-disaster Corporate Inventory Stockpiling : Evidence from Natural Disasters

We examine whether managers stockpile excess inventory after experiencing natural disasters. Using major disasters in the U.S. between 1993 and 2018, we document that firms located within a disaster area stockpile excess inventory after experiencing a disaster. The effect is stronger when a disaster is more catastrophic, suggesting that managers experiencing more salient events tend to stockpile excess inventories to a greater extent. We further show that the effect is more pronounced for firms with higher stockout costs and lower labor adjustment costs. The post-disaster decision to temporarily hoard inventory negatively affects firm value and leads to poor firm performance. Overall, our findings highlight the importance of managers’ subjective risk perceptions in inventory-holding decisions