Divesting under Pressure: U.S. firms’ exit in response to Russia’s war against Ukraine

Abstract

We explore the determinants and consequences of U.S. corporations limiting their business operations in Russia in the immediate aftermath of the 2022 Russian invasion of Ukraine. Firms with Russian exposure experience slightly worse stock market returns when the invasion begins on February 24, 2022. Russia-exposed firms with worse stock-price reactions to the war and greater share of operations in Russia are more likely to subsequently remain in Russia, while firms with milder ex ante exposure are more likely to withdraw or suspend their Russian operations. When U.S. firms announce exits from Russia in the aftermath of the invasion, there are no adverse announcement effects on their returns. Instead, exit announcements are preceded by a negative trend in abnormal returns that ends immediately on the day of the announcement. In regression analyses, immediately preceding negative stock returns are the strongest predictor of firms’ decisions to exit Russia, after size and industry. These results are consistent with firms choosing to limit their Russian presence in response to operational impact and reputational pressure, and the damage to stock returns stops immediately after the exit announcements.