How Do Firms Respond to Economic Sanctions? An Explorative Study of European Firms in Russia, 2014-2016

The impact of economic sanctions has been much debated in the academic literature but has largely overlooked the role of firms as economic agents. In this study, we explore the strategic response of multinational corporations (MNCs) following the imposition of economic sanctions. Taking the immediate period after the Russian annexation of Crimea in 2014 as a case, we query into whether European MNCs with subsidiaries in Russia conform to the political signals of the EU-Russian sanctions regime (i.e., EU sanctions against Russia, and Russian countersanctions). We analyze the strategic response of firms to sanctions on a sample of 364 subsidiaries of 212 firms originating from 20 European countries. Results show that most MNCs with Russian subsidiaries in affected sectors did not comply with the sanctions. Overall, we estimate the probability of complying to be between 1.3% and 2.7%. On the other hand, those that did comply decreased their Russian activities considerably. We discuss the policy implications and elaborate theoretical points for future research on firms’ strategic responses to economic sanctions. The study contributes to the body of literature that examines when, how and under what conditions economic sanctions influence firm-strategic behavior and responses.