The impact of foreign sanctions on firm performance in Russia

Abstract

We assess the economic effects of recent sanctions on Russian firms’ fundamental performance. We find that foreign sanctions leave energy firms in Russia unaffected but do undermine firm performance in the other (non-energy) sectors. While firms with connections to Russian oligarchs linked to Putin are unaffected, sanctions do not differentiate in their impact between firms with Russian and foreign origins. We provide evidence of decreased investment sensitivity to cash flows under the impact of foreign sanctions, suggesting that sanctions cause financial constraints, which is evident by increased cost of capital. Interestingly, Russian firms seem to be prepared for the Crimea event and the Ukraine war given their abnormal patterns of stockpiling and share repurchases in the years right before the conflicts. Ultimately, we find that increasing export to China at country-level helps alleviate the negative impact of sanctions on firm performance in Russia.