How Do Firms Respond to Supply Chain Disruptions? Evidence from the Great East Japan Earthquake

Recently, supply chains have been disrupted worldwide. Using 12-year panel data on buyer-supplier linkages in Japan, we study how the Great East Japan Earthquake in 2011 affected firm performance and their supply chains. We focus on buyer firms located outside the disaster area that were not directly hit by the earthquake and compare those firms with and without suppliers inside the disaster area before 2011. Exploiting difference-in-differences designs, we first find that treated firms, on average, were not differentially hurt. This is confirmed with various firm performance indicators including sales, employment, profit, investment, and productivity measures. Second, we find that treated firms increased the share of suppliers located outside the disaster area, which suggests that they substantially adjusted their supplier relationships. Moreover, we show that treated firms disproportionately accumulated new suppliers closer to their headquarters. The results suggest that it is important for firms to swiftly adjust their supplier network when they face huge, sizeable shocks.