Is Political Risk Company-Specific? The Market Side of the Yukos Affair

Abstract

The Yukos affair, a high-profile story of the state-led assault on a private Russian company, provides an excellent opportunity for an inquiry into the nature of company-specific political risks in emerging markets. News associated primarily with law enforcement agencies’ actions against company’s managers, not formally related to the company itself, caused significant negative abnormal returns for Yukos. The results are robust and not driven by a few major events, such as the arrests of Yukos’ top managers and shareholders. Stocks of less transparent private Russian companies have been more sensitive to Yukos-related events, especially employee-related charges by law enforcement agencies. The situation was different for less transparent government-owned companies such as the world-largest natural gas producer Gazprom: they appear to be significantly less sensitive to these events. Actions of regulatory agencies have had predominantly industry-wide impact, whereas law-enforcement agencies’ actions affected shares of large private companies, especially those privatized in the notorious loans-for-shares privatization auctions.