  Abrupt catastrophic events bring business risks into firms. The paper
introduces the Great Lushan Earthquake in 2013 in China as an unexpected shock
to explore the causal effects on public firms in both the long and short term.
DID-PSM methods are conducted to examine the robustness of causal inference.
The identifications and estimations indicate that catastrophic shock
significantly negatively impacts cash flow liquidity and profitability in the
short term. Besides, the practical influences on firms' manufacturing and
operation emerge in the treated group. Firms increase non-business expenditures
and retained earnings as a financial measure to resist series risk during the
shock period. As the long-term payment, the decline in production factors,
particularly in employment level and the loss in fixed assets, are permanent.
The earthquake's comprehensive interactions are also reflected. The recovery
from the disaster would benefit the companies by raising the growth rate of
R\&D and enhancing competitiveness through increasing market share, though
these effects are temporary. PSM-DID and event study methods are implemented to
investigate the general effects of specific strong earthquakes on local public
firms nationwide. Consistent with the Lushan Earthquake, the ratio of cash flow
to sales dropped drastically and recovered in 3 subsequent semesters. The shock
on sales was transitory, only in the current semester.
