The impact of foreign sanctions on Russian firm performance

Khan Hwang, Tuan LD Huynh, Steven Ongena 22 July 2022

Editors’ note: This column is part of a Vox debate on the economic consequences of war.

The implications of the sanctions and restrictions imposed on Russia following the February 2022 invasion of Ukraine have been extensively discussed here at Vox (eg Pestova et al. 2022, Langot et al. 2022, Lafrogne-Joussier et al. 2022). In this column, we expand on these discussions by looking back at what happened in 2014 surrounding the events in Crimea.

For our study (Huynh et al. 2022), we collected data on 788 publicly listed Russian firms from 2000 to 2019. Foreign sanctions data were collected from the Global Sanctions Data Base (Felbermayr et al. 2020, Kirilakha et al. 2021), a dataset of global economic sanctions covering all bilateral, multilateral, and multilateral sanctions from 1950 to 2019. Regarding our detection strategy, we consider the 2014 exogenous shock as a critical event to explain the causal relationship using a difference. The difference setting is supplemented with a propensity score matched sample. Each observation in the treatment group is matched to an observation in the control group using the nearest neighbor to match their characteristics such as firm size, leverage, market value, fixed assets, and financial constraints so that they are identical in firm-level financial terms. Characteristics Also, in our IV method, we use Ukraine’s geopolitical risk (Caldara and Iacovillo 2022) and Americans’ favorable opinion scores about Russia (from the Global Attitude Survey 2019) as instrumental variables.

Russian companies and foreign sanctions

We first focus on the link between the decline in performance of Russian firms, their return-on-asset ratio (ROA), and the number of foreign sanctions imposed on Russia during the year (this is the stock of sanctions in place, rather than the flow of new sanctions). Figure 1 illustrates the heterogeneity of the impact of foreign sanctions on Russian firm performance. To start with the first line, a one standard deviation change in the number of foreign sanctions (which equals about 20) reduces ROA by 3.4 percentage points – a large effect equal to about 30% of the standard deviation of ROA. Points represent parameter estimates (after controlling for firm characteristics and macroeconomic determinants) and 95% confidence intervals represent statistical significance. The more negative the parameters, the greater the negative impact on ROA of Russian firms; And the wider the dashed line, the lower the statistical significance.

Figure 1 The impact of foreign sanctions on the performance of Russian firms

After implementing the previously mentioned identification strategy, we provide causal estimates for restriction-firm performance after verifying instrumental variables by Olea and Pflueger (2013)’s F-test, Kleibergen-Paap weak identification test statistic, Anderson-Rubin Wald test. and confidence intervals, and Hansen-J over-identification test statistics. Our coefficients on the effect of foreign sanctions are significantly negative, implying a causal effect of sanctions on the performance of Russian firms.

When looking at different types of sanctions, such as financial sanctions, travel sanctions, and trade sanctions (including import-weighted and export-weighted sanctions), the effects on firms’ performance differ. Travel bans exhibit the highest negative impact due to being imposed early on the Russian economy and having the highest number of sanctions by Western countries in this category. At the same time, although trade restrictions have changed over time, travel and financial restrictions have continued.

Russian ‘shield’? Distance or origin have no effect, but power and oligarchs do ‘slope’

We begin with political proximity to the Kremlin because we hypothesize that firms close to the Kremlin may be immune to sanctions. We measure physical distance to the Kremlin (Moscow) and examine whether geographic location matters for the effect of foreign sanctions on firm performance. We provide evidence that distance to Moscow has no effect on the sanctions-firm performance nexus (line 8 of Figure 1). The second test is based on firm origin to see what might further protect firms from being harmed. The results indicate that being foreign in origin does not help firms suffering from declining firm performance.

One of our highlighted findings is that foreign sanctions do not seem to affect Russian energy firms but reduce firm performance in other (non-energy) sectors. Observing the ROA of those firms during the period 2014-2019 (illustrated from time 0-4 in Figure 2), we can see that there is a slight decline in ROA compared to the previous period; However, the trend is not clear. The joint significance of all estimated coefficients in the post-2014 period does not reject the hypothesis, implying a null effect of economic sanctions on energy firms following the approval shock in 2014.

Figure 2 Impact of Sanctions on Energy Firm Performance with Base-Year (2013).

In addition, we collect information for firms associated with Russian oligarchs connected to Putin following the “Putin List” provided by CNN, which results in 21 firms with those oligarchs as founders or major shareholders. Out of these 21 companies, only six are energy companies. Using a sample of these firms, we find that foreign sanctions do not have a significant effect on their performance. Our findings related to power and oligarch-related firms suggest the presence of a shield to protect those firms from the negative effects of foreign sanctions.

Process search and preparation for sanctions

We set up an empirical model to understand how firm characteristics are associated with the number of foreign sanctions, shown in Figure 3. We find that, on average, Russian firms invest less in both capital (2.6% less) and R&D (1.1% less) and bear higher costs of capital (up to about 2%) under increasing foreign sanctions. Since a large proportion of foreign sanctions imposed on Russia are in the form of financial or trade sanctions (or both), this increases uncertainty, thus deterring corporate investment and causing further market friction.

Figure 3 Foreign embargo proceedings on firm performance

We assume that Russian agencies were prepared for the events in Crimea. There are four arguments for this based on our analysis, summarized in Figure 4. First, trade flows to Russia increased significantly in 2013, consistent with hoarding behavior, which is also supported by other literature (Aidt et al. 2021). Second, Russian firms cut investment by 4.3% in 2013 in response to foreign sanctions, but oligarch-related and energy firms did not. Third, energy companies increased their inventories by 3.3%, a 20-fold jump from the average annual increase over the period 2000-2012 (when inventories were held constant for all practical purposes). Finally, Russian oligarch-related firms repurchased 3.0% more of their outstanding shares in 2013 than other firms, an amount that was three times higher than the annual average for the period 2000–2012. This suggests that those (power and oligarch-related) firms may have an information advantage and prepare by neutralizing the effect of subsequent sanctions on their performance.

Figure 4 Preparation of power and oligarch organizations for events in Crimea

Interestingly, we also find similar unusual patterns of change in inventories of energy and oligarch-related firms in 2021 compared to the 2015–2020 period, while inventories among other firms are much lower. When Russia invaded Ukraine in early 2022, these patterns indicated the readiness of Russian organizations as they sensed the possibility of an impending war.


Our study assesses nearly two decades of economic impacts of recent sanctions on Russian firms. We find that foreign sanctions appear to reduce firm performance in general; However, there is no clear impact on Russian power and oligarch-related organizations. We provide evidence that foreign sanctions increase the cost of capital and political risk of Russian firms and slightly decrease the intensity of corporate investment and R&D. In short, the sanctions had some impact on Russian companies, but the impact was quite small and mostly missed the most important sector of the Russian economy (ie the energy sector) as well as the wealth of the oligarchs. Interestingly, we find that Russian power and oligarch-related organizations were apparently prepared for the Crimean event. While the sanctions caused some economic pain, they may not have been enough; “Bears don’t hibernate in winter”.

A new and much stronger wave of sanctions has now been imposed and the question, “Will they pay?”, may require a careful and qualified answer. Given that Russian companies may be prepared, it may ultimately take more than sanctions to stop and undo this nefarious attack.


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Caldara, D and M Iacoviello (2022), “Measuring Geopolitical Risk”, American Economic Review 112(4): 1194-1225.

Felbermayr, G, A Kirilakha, C Syropoulos, E Yalcin and YV Yotov (2020), “The Global Sanctions Data Base”, European Economic Review 129: 103561.

Hasan, TA, S Hollander, L van Lent and A Tahoun (2019), “Firm-Level Political Risk: Measurement and Implications”, THe Quarterly Journal of Economics 134(4): 2135-2202.

Huynh, TLD, K Hoang and S Ongena (2022), “The Impact of Foreign Sanctions on Firm Performance in Russia”, CEPR Discussion Paper 17415.

Kirilakha, A, G Felbermayr, C Syropoulos, E Yalcin and YV Yotov (2021), “The Global Sanctions Data Base: An Update Covering the Years of the Trump Presidency”, in PAG Van Burgies (ed). Handbook of Research on Economic Sanctions, Edward Elgar, Cheltenham.

Lafrogne-Joussier, R, A Levchenko, J Martin and I Mejean (2022), “Beyond macro: firm-level effects of Russian power cuts”,, 24 April.

Langot, F, F Malherbet, R Norbiato and F Tripier (2022), “Strength in unity: the economic costs of trade sanctions on Russia”,, 22 April.

Pestova, A, M Mamonov and S Ongena (2022), “The Price of War: Macroeconomic Impact of 2022 Sanctions on Russia”,, 15 April.

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