Predicting flood insurance claims with hydrologic and socioeconomic demographics via machine learning: exploring the roles of topography, minority populations, and political dissimilarity

Current research on flooding risk often focuses on understanding hazards, de-emphasizing the complex pathways of exposure and vulnerability. We investigated the use of both hydrologic and social demographic data for flood exposure mapping with Random Forest (RF) regression and classification algorithms trained to predict both parcel- and tract-level flood insurance claims within New York State, US. Topographic characteristics best described flood claim frequency, but RF prediction skill was improved at both spatial scales when socioeconomic data was incorporated. Substantial improvements occurred at the tract-level when the percentage of minority residents, housing stock value and age, and the political dissimilarity index of voting precincts were used to predict insurance claims. Census tracts with higher numbers of claims and greater densities of low-lying tax parcels tended to have low proportions of minority residents, newer houses, and less political similarity to state level government. We compared this data-driven approach and a physically-based pluvial flood routing model for prediction of the spatial extents of flooding claims in two nearby catchments of differing land use. The floodplain we defined with physically based modeling agreed well with existing federal flood insurance rate maps, but underestimated the spatial extents of historical claim generating areas. In contrast, RF classification incorporating hydrologic and socioeconomic demographic data likely overestimated the flood-exposed areas. Our research indicates that quantitative incorporation of social data can improve flooding exposure estimates

Political connections and corporate financial decision making

This paper investigates whether and how political connections influence managerial financial decisions. Our study reveals that those firms that have a politician on its board of directors are highly leveraged, use more long-term debt, hold large excess cash and are associated with low quality financial reporting compared to their non-connected counterparts. These effects escalate with the strength of the connected politician and whether he or his party is in power. The winning party effect is observed to be stronger than victory by the politician himself. Overall, our paper provides strong evidence that political connection is a two-edged sword. It is indeed a valuable resource for connected firms, but it comes at a cost of higher agency problems

External sources of political connections: financial advisors and Chinese acquisitions

This study considers the effects of an external form of political connection, namely, politically connected financial advisors, on the value creation of Chinese acquiring firms over the period 2004–2014. Using data consisting of 1,623 Chinese mergers and acquisitions (M&As) deals, we show that politically connected financial advisors create significantly higher market value for acquiring firms, after controlling for firms' own political connections and reputation. Further analysis indicates that the appointment of political advisers can improve an acquiring firm's long‐term industry‐adjusted operating performance and help acquirers reduce bid premiums. We show that private firms and stock‐pay acquisitions are more likely to appoint politically connected financial advisors in M&A transactions, whereas our findings remain unchanged after controlling for endogeneities

Reality or Illusion? The Efficacy of Nonmarket Strategy in Institutional Risk Reduction

Nonmarket strategy researchers have postulated that political and social strategies reduce the exposure of firms to risk, but those arguments have received little empirical attention. In this paper, we integrate social capital and institutional theories to examine the efficacy of managerial political ties (MPT) and corporate social responsibility (CSR) in institutional risk reduction. Using survey data from 179 firms in Ghana, we find that whereas CSR reduces institutional risk exposure, MPT do not. We also find that the effect of MPT on risk exposure is moderated by public affairs functions. Contrary to extant literature, we do not find evidence of complementarity between MPT and CSR. Altogether, the findings do not only show that the proposed efficacy of MPT in risk reduction is illusive, but they also signal the need for scrutinizing the harmony between nonmarket political and social strategie