Do natural disasters impact the creation of new business ventures? According to research by Arkangel Cordero, assistant professor of management at the Carlos Alvarez College of Business at UTSA, the correlation of the two is uncanny.
Cordero’s paper, “Community and Aftershock: New Venture Founding in the Wake of Deadly Natural Disasters,” was recently published in the Journal of Business Venturing. Through his research, Cordero uncovered unspoken opportunities found after the turmoil of natural disasters. As devastating natural phenomena continue to pop up globally, social, political and economic stability is increasingly threatened. In his study, Cordero dives into the venturing opportunities and communal needs that arise after a natural disaster has struck, as well as precautionary measures communities and local governments should take for fast post-disaster recovery.
Gaining inspiration amidst the COVID-19 pandemic, Cordero used the responses of policymakers and communities during this time and recent natural disasters to formulate his case. A native of Nicaragua, he first discovered his love for entrepreneurship after observing the effects starting a business can have on one’s social mobility. An equal opportunity for all, business venturing allows individuals to pave their own path to stability.
“Entrepreneurship has been proven to be of great help in aiding the recovery of regions affected by the disasters, but much of this entrepreneurial research has not focused on how the resulted human death toll affects the creation of new businesses,” stated Cordero, an entrepreneurship and strategic management professor at the college since 2016.
Cordero’s study finds that death and devastation caused by natural disasters in a county has a negative effect on post-disaster business venturing in that county. Additionally, he discovered that strong pre-disaster participation in voluntary associations (e.g., the Girl Scouts, parent teacher associations, etc.) can protect against this effect because it allows communities to work together as a unit to overcome adversity.
Exploring the negative trend in post-disaster business venturing further, Cordero references two biases that increase the perceptions of uncertainty amongst entrepreneurs: incidental emotion bias and availability bias. Incidental emotion bias refers to emotions evoked in one setting that transfer over to decision-making in another situation, i.e., fear and anxiety after a natural disaster increasing the uncertainty of an individual starting a new business. Availability bias refers to individuals overestimating the likelihood of recurrence of an impactful event, which leads to an increase in uncertainty perceptions as well. Cordero goes on to explain how the two biases together often plague entrepreneurs and discourage the growth of local businesses and economies.
“Because the availability bias leads individuals to overestimate the probability of a high-fatality natural disaster reoccurring, this overestimation can amplify the fear and anxiety associated with the event, increasing the transfer of emotion-induced uncertainty (the incidental emotion bias) to the decision of whether to start a new venture,” he said. “Similarly, the higher the fear and anxiety induced by a natural disaster, the more easily the event is remembered, further increasing the availability bias. This ultimately leads to a disproportionate increase in prospective entrepreneurs’ perceptions of uncertainty, which has been shown to decrease new venture founding.”
Cordero’s research places responsibility on policymakers at every governmental level and local communities to recognize the critical role that fostering a strong community and local participation in voluntary associations can have in encouraging entrepreneurship to promote the speedy recovery of communities post-disaster, both physically and mentally.
“Many communities and officials tend to focus on the physical and economic damages that disasters bring. Who focuses on the psychological damages of loss in these situations? Fostering a strong sense of community before a disaster strikes is imperative for a complete social, political and economic reformation after a disaster,” concludes Cordero.
Wanting to continue his research in the field of entrepreneurial studies, Cordero will be co-authoring research examining the relationship between ethnic diversity and new venture founding with Alexander Lewis, assistant professor of management.