The impact of economic sanctions on firm performance: Perceptions of Russian SME managers

Abstract

Goal: drawing from resource-based and institutional perspectives, the Russian sanctions/countersanctions are studied as a context of enduring economic-political turbulence for small- and medium-sized enterprises (SMEs) managers following external shock for Russian economy after first wave of sanctions in 2014 which affects firm performance through resource availability changes and (enforced) adjustments of strategic resources. Metodology: logit models are estimated for 972 SMEs within the sample of more than 1 700 manufacturing firms in Russia that are no direct targets of the sanctions. Cross sectional survey data collected in 2018 are used to evaluate the sanctions’ effect represented in the perceptions of SME managers about their firm performance. Findings: sanctions decrease the value of the firms’ resource combinations and force SMEs to bear adjustment costs. SMEs that are limited in their resource availability find it burdensome to derive adjustment strategies through resource re-allocations. All else equal, the technologically advanced SMEs perceive a deteriorated performance, while SMEs with domestic and international partnerships and young firms remain more optimistic. Counter sanctions helped to mitigate the burden of deteriorated business environment. Originality and contribution of the authors: the paper contributes to understanding of sanctions’ effect for firms that are not direct target of sanctions, which amends the existing macro-level and sectoral studies on the effects of economic sanctions with a more nuanced micro-level exploration taking into account heterogeneity of firms’ response to sanctions shock.