The influence of international sanctions on agency efficiency in Russia


Khanh Hoang, Toan L.D. Huynh, Steven Ongena 22 July 2022

Editors’ observe: This column is a part of the Vox debate on the financial penalties of battle.

The consequences of the sanctions and restrictions imposed on Russia following its invasion of Ukraine in February 2022 have been mentioned extensively right here on Vox (e.g. Pestova et al. 2022, Langot et al. 2022, Lafrogne-Joussier et al. 2022). On this column, we prolong these discussions by wanting again at what occurred surrounding the Crimea occasion in 2014. 

For our examine (Huynh et al. 2022), we collected information on 788 publicly listed Russian companies in the course of the interval 2000 to 2019. Overseas sanction information have been gleaned from the International Sanctions Information Base (Felbermayr et al. 2020, Kirilakha et al. 2021), a dataset of worldwide financial sanctions protecting all bilateral, multilateral, and plurilateral sanctions from 1950 to 2019. Concerning our identification technique, we contemplate the exogenous shock in 2014 because the crucial occasion to interpret the causal relationship by utilizing a difference-in-differences setting supplemented with a propensity rating matched pattern. Every statement from the therapy group is matched with one statement within the management group utilizing nearest neighbour matching by their traits similar to agency dimension, leverage, market worth, fastened belongings, and monetary constraints in order that they’re an identical by way of firm-level monetary traits. As well as, in our IV method, we use Ukraine’s geopolitical threat (Caldara and Iacoviello 2022) and the rating of People’ beneficial opinion about Russia (from the International Attitudes Survey 2019) as instrumental variables. 

Russian companies and international sanctions 

We focus first on the affiliation between a discount in Russian companies’ efficiency, proxied by their return-on-assets ratio (ROA), and the variety of international sanctions positioned on Russia in the course of the 12 months (that is the inventory of sanctions in place, quite than the stream of recent sanctions). Determine 1 illustrates heterogeneity within the influence of international sanctions on Russian agency efficiency. To start with the primary line, a one normal deviation change within the variety of international sanctions (which equals nearly 20) decreases the ROA by 3.4 share factors – a big impact equal to nearly 30% of the ROA’s normal deviation. The factors characterize the parameter estimates (after controlling for agency traits and macroeconomics determinants) and the traces the 95% confidence interval revealing statistical significance. The extra destructive the parameters, the extra destructive the influence on Russian companies’ ROA; and the broader the dashed line, the decrease the statistical significance.

Determine 1 The impacts of international sanctions on Russian agency efficiency

After implementing the identification technique as talked about earlier, we offer causal inference for the sanctions-firm efficiency after validating the instrumental variables by Olea and Pflueger (2013)’s F-test, Kleibergen-Paap weak identification take a look at statistics, Anderson-Rubin Wald take a look at and confidence interval, and Hansen-J over-identification take a look at statistics. Our coefficients of impacts of international sanctions are considerably destructive, implying a causal impact of sanctions on Russian companies’ efficiency. 

When various kinds of sanctions similar to monetary sanctions, journey sanctions, and commerce sanctions (together with import-weighted and export-weighted sanctions), there’s heterogeneity in impacts on the companies’ efficiency. Journey sanctions exhibit the very best destructive influence because of their earliest imposition on the Russian economic system and as a result of highest variety of sanctions from Western international locations on this class. Concomitantly, whereas commerce sanctions have been various throughout time, the journey and monetary sanctions have persevered.

Russian ‘shields’? No impact of distance or origin, however vitality and oligarchs do ‘defend’

We begin with political proximity to the Kremlin as a result of we formulate the speculation that companies near the Kremlin could also be shielded from the sanctions. We measure the bodily distance to the Kremlin (Moscow) and take a look at whether or not geographical location issues for the influence of international sanctions on agency efficiency. We offer proof that the space to Moscow on the sanctions-firm efficiency nexus has no influence (line 8 in Determine 1). The second take a look at relies on agency origin to see what may additional defend companies from being affected. The outcomes point out that being of international origin doesn’t assist companies affected by a discount in agency efficiency.

One in all our highlighted findings is that international sanctions depart vitality companies in Russia seemingly unaffected however do undermine agency efficiency within the different (non-energy) sectors. Observing the ROA of these companies in the course of the 2014–2019 interval (illustrated from Time 0-4 in Determine 2), we see that there was a slight decline in ROA in comparison with the earlier interval; nonetheless, the pattern just isn’t clear. The joint significance of all estimated coefficients of the post-2014 interval don’t reject the speculation, implying a null impact of financial sanctions on vitality companies following the sanction shock in 2014.

Determine 2 The consequences of sanctions on vitality agency efficiency with base-year (2013)

Furthermore, we hand-collect information for companies which might be associated to Russian oligarchs who’ve connections to Putin following the “Putin checklist” offered by CNN, leading to 21 companies with these oligarchs as founders or main shareholders. Amongst these 21 companies, solely six are vitality companies. Utilizing the pattern of these companies, we discover that international sanctions don’t have a big influence on their efficiency. Our findings associated to vitality and oligarch-related companies counsel the presence of a defend defending these companies from the destructive influence of international sanctions. 

Mechanism exploration and preparedness for sanctions 

We arrange an empirical mannequin to determine how agency traits are related to the variety of international sanctions, illustrated in Determine 3. We discover that, on common, Russian companies make investments much less in each capital (down 2.6%) and R&D (down 1.1%) and bear the next price of capital (up by nearly 2%) underneath rising international sanctions. As a big portion of international sanctions positioned on Russia are within the type of monetary or commerce sanctions (or each), it will increase uncertainty, thus hindering company funding and inflicting extra market frictions.

Determine 3 The mechanism of international sanctions on agency efficiency

We hypothesise that Russian companies could have been ready for the Crimea occasion. There are 4 arguments for this primarily based on our analyses, summarised in Determine 4. First, commerce flows in Russia enhance considerably in 2013 in line with stockpiling behaviour, which can be supported by different literature (Aidt et al. 2021). Second, Russian companies basically retrenched funding by 4.3% in 2013 in response to international sanctions, however oligarch-related and vitality companies didn’t. Third, vitality companies elevated their inventories by 3.3%, a 20-fold soar from the common yearly enhance over the 2000–2012 interval (when inventories have been stored regular for all sensible functions). Lastly, Russian oligarch-related companies repurchased 3.0% of their excellent shares in 2013 on common compared to different companies, an quantity which is thrice larger than the yearly common of the 2000-2012 interval. This implies that these (vitality and oligarch-related) companies could have had an data benefit and did put together, neutralising the influence of later sanctions on their efficiency. 

Determine 4 The preparedness of vitality and oligarch companies for the Crimea occasion

Apparently, we additionally discover comparable irregular patterns of modifications in inventories of vitality and oligarch-related companies in 2021 relative to the 2015–2020 interval, whereas the magnitude of inventories is way smaller in different companies. As Russia invaded Ukraine in early 2022, these patterns indicate the preparedness of Russia companies as they sense the potential of an upcoming battle.


Our examine assesses the financial results of just about 20 years of latest sanctions on Russian companies. We discover that international sanctions appear to undermine agency efficiency basically; nonetheless, there isn’t a clear influence on Russian vitality and oligarch-related companies. We offer proof that Russian companies’ price of capital and political threat will increase with international sanctions, and that company funding and R&D depth decreases considerably. In sum, sanctions did have some influence on Russian companies, however the impact was quite small and principally missed a very powerful sector of the Russian economic system (i.e. the vitality sector) in addition to oligarchs’ wealth. Apparently, we discover that Russian vitality and oligarch-related companies have been seemingly ready for the Crimea occasion. Though sanctions did generate some financial ache, they will not be sufficient; “bears merely don’t undergo from hibernating throughout winter”. 

A brand new and far stronger wave of sanctions has now been imposed and the query, “Will they ship?”, could require a cautious and certified reply. Provided that Russian companies could have been ready, ultimately extra than simply sanctions could have been justifiably wanted to halt and undo this unprovoked invasion.


Aidt, T S, F Albornoz and E Hauk (2021), “Overseas affect and home coverage”, Journal of Financial Literature 59(2): 426-87.

Caldara, D and M Iacoviello (2022), “Measuring geopolitical threat”, American Financial Evaluate 112(4): 1194-1225.

Felbermayr, G, A Kirilakha, C Syropoulos, E Yalcin and Y V Yotov (2020), “The worldwide sanctions information base”, European Financial Evaluate 129: 103561.

Hassan, T A, S Hollander, L Van Lent and A Tahoun (2019), “Agency-level political threat: Measurement and results”, The Quarterly Journal of Economics 134(4): 2135-2202.

Huynh, T L D, Okay Hoang and S Ongena (2022), “The Impression of Overseas Sanctions on Agency Efficiency in Russia”, CEPR Dialogue Paper 17415.

Kirilakha, A, G Felbermayr, C Syropoulos, E Yalcin and Y V Yotov (2021), “The International Sanctions Information Base: An replace that features the years of the Trump presidency”, in P A G van Bergeijk (ed), Analysis Handbook on Financial Sanctions, Edward Elgar, Cheltenham.

Lafrogne-Joussier, R, A Levchenko, J Martin and I Mejean (2022), “Past macro: Agency-level results of reducing Russian vitality”,, 24 April.

Langot, F, F Malherbet, R Norbiato and F Tripier (2022), “Power in unity: The financial price of commerce restrictions on Russia”,, 22 April.

Pestova, A, M Mamonov and S Ongena (2022), “The value of battle: Macroeconomic results of the 2022 sanctions on Russia”,, 15 April.



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