Targeting the Corps: The Incidence of Humanitarian Sanctions on Firm Performance in China

Jean-François Maystadt, Kampui Tsang, Johannes Van Biesebroeck and Nele Warrinnier

No 746863, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: Do international sanctions effectively impose economic costs on targeted entities? We consider various U.S. sanctions imposed on the Xinjiang Production and Con struction Corps (XPCC) from July 2020 onward. We find that exactly when sanc tions are imposed, stock market returns of XPCC-connected companies are 1 to 2 percent lower than those of non-sanctioned companies. We explore the potential channels for this drop in market value using quarterly firm-level accounting data. Results indicate that inventories increased, but there is no evidence that sanc tions impacted profitability, size, or liquidity. Furthermore, we find evidence that targeted companies were shielded through lower borrowing costs, lower taxes and higher subsidies, which might explain the relatively small losses in market value. These findings suggest that targeted sanctions can generate economic costs, but also that governments can shield targeted entities from bearing the full cost.

Pages: 61
Date: 2024-01
New Economics Papers: this item is included in nep-acc
Note: paper number DPS 24.01
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Forthcoming in FEB Research Report Department of Economics

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Working Paper: Targeting the Corps: The Incidence of Humanitarian Sanctions on Firm Performance in China (2024)
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