Russo-Ukrainian geopolitical tensions: An empirical analysis of corporate investment in Europe

Abstract

We propose a new measure of firm-level exposure to the Russo-Ukrainian geopolitical tensions that considers both developments in regional geopolitics and firm-specific political risk regarding defense and security. Using a sample of European firms from seventeen European countries during 2002–2021, we find that firm-level exposure to the Russo-Ukrainian geopolitical tensions hinders capital expenditure in European firms, while having no significant impact on working capital management practices. The findings remain robust to the inclusion of geographical distance to Russia, different variable measurement choices, model specifications, and endogeneity tests. Interestingly, the impact seems less pronounced in firms with more intangible intensity, suggesting the role of intangible assets in corporate resilience during crisis.