What makes firms vulnerable to the Russia–Ukraine crisis?

Abstract

PurposeThis study examines the impact of the Russia–Ukraine war on the constituent firms of the leading stock market indices of the G7 countries to provide insights into the vulnerability of firms to war events.Design/methodology/approachThis study employs the event study method on a sample of 531 firms covering the period from 02 March 2021 to 08 March 2022 and conducts a cross-sectional analysis of cumulative abnormal returns and country- and firm-specific variables.FindingsRisk exposure and trade dependence trigger invasion-generated negative abnormal returns. The authors demonstrate that stock prices are fragile to geopolitical risks and trade dependence. Consistent with previous literature, the authors find evidence of a size anomaly and high risk associated with a higher book-to-market ratio.Research limitations/implicationsThis study has implications for policymakers identifying the firm-specific variables driving event-induced returns. While providing insights into the geographical diversification of funds, this study shows the heterogeneous characteristics of firms operating in these countries.Originality/valuePrevious studies on the Russia–Ukraine war have been limited to analyzing the behavior of leading stock market indices without examining firm-level variations triggered by the war. This study fills this gap and contributes to the growing literature on the Russia–Ukraine crisis in two ways: first, it provides firm-level evidence from the G7 countries in addition to how global stock market indices have reacted to the invasion and second, it uses cross-sectional analysis to provide evidence of the characteristics that make firms resilient to wars.HighlightsWe are the first to report firm-level evidence of the Russia–Ukraine war effectsFirms in France and the United States are unaffectedStock prices are fragile to geopolitical risks and considerable dependence on tradeHigher book-to-market exposes the firms to the risk of exogenous shocksSmaller firms outperform large firms in the G7 stock markets