Journal of Business Valuation and Economic Loss Analysis

Published by De Gruyter

Volume 4 Issue 2

April 2009

Issue of Journal of Business Valuation and Economic Loss Analysis

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Contents
Journal Overview

Article

April 15, 2009

An Overview of Hurricane Katrina and Economic Loss

Bradley T. Ewing, Jamie Brown Kruse, Daniel Sutter

Abstract

We review the literature on business activity and disasters, and specifically hurricanes. An overview of the papers in the special issue on Economic Loss and Hurricane Katrina is provided.

April 15, 2009

Sound and Fury: Rhetoric and Rebound after Katrina

William A Carden

Abstract

Free markets in capital and labor are essential to rapid recovery from natural disaster. Political and rhetorical responses to Hurricane Katrina included denunciation of price gougers in the market for gasoline; the arbitrariness associated with anti-price gouging legislation may create uncertainty that reduces the attractiveness of the investment climate.

April 15, 2009

Petroleum-Refining Industry Business Interruption Losses due to Hurricane Katrina

Kivanc Kirgiz, Michelle Burtis, David A Lunin

Abstract

Hurricane Katrina had a significant destructive effect on the Gulf Coast's petroleum-refining industry. In many cases, refineries sustained considerable damage and had to suspend operations for extended periods of time. Multiple Gulf Coast refineries filed substantial business interruption loss insurance claims following Hurricane Katrina's disruption of their production. This paper presents a methodology to calculate refinery business interruption losses taking into account the effect of Hurricane Katrina on input and output market prices during the period of restoration. Our results indicate that adjusting for Hurricane Katrina's effects on crude oil and petroleum product market prices significantly changes the magnitude of refinery business interruption loss claims.

April 15, 2009

The Value of Lost Production from the 2004-2005 Hurricane Seasons in the Gulf of Mexico

Mark J. Kaiser, David E Dismukes, Yunke Yu

Abstract

The oil and gas industry in the Gulf of Mexico has the greatest weather exposure in the world, and is vulnerable to a range of losses that include physical damage, destruction, business interruption, and pollution liability. During the 2004 and 2005 hurricane seasons, a number of offshore facilities, drilling rigs, and pipelines were destroyed and extensively damaged. In total, Hurricanes Ivan, Katrina, and Rita destroyed 122 structures and severely damaged 76 others. Most of the destroyed infrastructures were mature assets that are unlikely to meet the economic thresholds to support redevelopment, and in the majority of cases, the production and revenue from these structures will be "lost" and written off by operators. The purpose of this paper is to examine the destroyed infrastructure from the 2004 and 2005 hurricane seasons and the likely contribution this collection of assets would have made to future production in the Gulf. We estimate the amount and value of lost production under various model scenarios, present the results of sensitivity analysis, and discuss the limitations of the analysis. We estimate that between 60 and 65 million barrels of oil and 231 to 266 billion cubic feet of gas were permanently lost in the 2004-2005 hurricane seasons at an estimated value ranging between $1.3-4.5 billion, depending on the future price profiles of oil and gas.

April 15, 2009

Hurricane Katrina and Economic Loss: An Alternative Measure of Economic Activity

Mark A Thompson

Abstract

This paper examines the effect of Hurricane Katrina on Louisiana's state economy. In particular, I use a state coincident index to assess the economic loss from Hurricane Katrina. This alternative approach provides policymakers with a simple and timely measure of the economy for modeling disasters.

April 15, 2009

Rationality at the Eve of Destruction: Insurance Stocks and Huge Catastrophic Events

Benjamin Kleidt, Dirk Schiereck, Christof Sigl-Grueb

Abstract

We study the valuation impact on 148 insurance stocks caused by 25 of the largest catastrophic events that occurred in recent history. Because of their exceptional severity and the consequent high attention they experience in the media we expect to find significant overreactions of insurance stocks relative to the market, which would be in-line with an availability bias known from the behavioral finance literature. However, we have to realize that insurance stock investors behave not less rational than the market does under these conditions. A clear exception to this are the 9/11 terror attacks. In general we find that insurance stocks adjust gradually to a new valuation level.

April 15, 2009

The Impact of Hurricanes Katrina, Rita and Wilma on Business Establishments

Ron S Jarmin, Javier Miranda

Abstract

We show that GIS based estimates of the economic impact of the 2005 hurricanes provide a more accurate characterization of affected businesses than widely reported estimates constructed from county level data. Our methodology relies on mapping business establishments into damage zones defined by remote sensing information provided by FEMA. Our methodology is based on pre-storm data, so estimates can be made available very quickly to inform the public as well as policy makers. Our GIS-based estimates indicate significantly smaller impacts on business payroll than previous estimates using county level data. Tests using post-storm data support our GIS methodology.

April 15, 2009

Interest Rate Manipulation, Environmental Damage, and Loss Valuation

Mark A. Yanochik, Risa Kumazawa

Abstract

The damage generated by Hurricane Katrina caused significant private as well as social costs. The water and force from the hurricane and subsequent flooding caused immediate property damage, but also potential environmental contamination over time. The decision on the part of property owners affected by Katrina to deal with damaged property must take into account both the private and social costs. This paper explores this decision making process using a real-options model. In particular, we focus on the element of time preference in this decision. We analyze the impact that changes in monetary policy, and ultimately the discount rate, have on the decision to repair or rebuild a property damaged by flooding. According to the theory, rising interest rates would suggest a greater propensity to defer the option to rebuild damaged properties, whereas falling interest rates cause property owners to reach the decision to rebuild properties relatively more quickly.

April 15, 2009

Katrina and the Gulf States Casino Industry

Douglas M Walker, John D Jackson

Abstract

Hurricane Katrina devastated the Louisiana and Mississippi Gulf Coast. The casino industry, especially in Mississippi, suffered staggering losses. We describe the industrys losses and provide data on the industry before and after Katrina. Following previous research which has indicated that casino development may be a stimulus to a states economy, we use a simple OLS model to examine whether rebuilding the Gulf Coast casinos has had an impact on personal income in Louisiana and Mississippi. After accounting for other factors, our results indicate that the casino industry has had a positive impact on post-Katrina personal incomes in Louisiana and Mississippi.

April 15, 2009

Analysis of Wind-Induced Economic Losses Resulting from Roof Damage to a Metal Building

Apoorv Dabral, Bradley T. Ewing

Abstract

Metal roofs are highly susceptible to hurricane wind damage. Roof damage is a particularly important element in the estimation of economic losses as even minor roof damage can augment the total loss due to entrance of rain and subsequent interior and content loss. Dabral (2007) developed a probabilistic damage model to predict the physical damage in a metal roof due to wind. This study estimates economic losses associated with high-wind, hurricane events that cause roof damage to metal buildings using Hurricane Katrina data and a hurricane simulation data set. A cost benefit study is also performed to establish the cost effectiveness of mitigation.

About this journal

Objective
The Journal of Business Valuation and Economic Loss Analysis (JBVELA) is a refereed academic journal that publishes continuously throughout the year and is co-edited by Bradley Ewing and James Hoffman. The mission of the Journal of Business Valuation and Economic Loss Analysis is to improve the practice of business valuation, economic loss analysis, and risk management by helping to inform academics, practitioners, and attorneys about theoretical and practical developments in these fields.

Topics

business valuation
economic loss analysis
risk management

Article formats
Research articles
The journal publishes three categories of manuscripts. The first category encompasses both empirically- and conceptually-based manuscripts that advance the fields of business valuation, economic loss analysis, or topics related to risk. The second category of manuscripts focus on the description of how theory has been put into practice, including case study examples. The third category of manuscripts concerns how recent rulings and changes in the law affect business valuation, economic loss analysis, and risk management practices, assessment, and analysis.

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