Firms’ Divestment from the Russian Federation after 2022 Full-Scale Invasion of Ukraine

Abstract

This thesis examines investor reactions to the effects of sanctions and regulations on share prices in both the short and long term. Since sanctions can neither be forecasted nor anticipated, they represent an external shock for European firms, forcing them to deal with imploded supply chains and the sudden exclusion of Russia from international capital markets. This perfect storm, in both scale and scope, has never been seen before and could serve as a case study for corporations facing sudden sanctions in a foreign land that their country of domiciliation deems a rogue actor. Using a sample of 373 initial decisions from press releases obtained from the KSE Institute database, covering the period from February 28, 2022, to February 28, 2023, the study investigates the impact of business decisions on stock prices in the context of an unstable economic environment. An event study methodology combined with cross-sectional regression analysis is employed. The results show that, in the short term, it is most beneficial to exit the market entirely, with a corresponding cumulative abnormal return (CAR) of -2.1%. In the long term, the most favourable outcome arises from selling the subsidiary while retaining a buy-back option, resulting in a CAR of 16.9%. Overall, this study contributes to understanding investor reactions to corporate actions under sanctions and rapidly changing economic conditions.