Firm reaction to geopolitical crises: Evidence from the Russia‐Ukraine conflict

Md Asif Ul Alam, Erik Devos and Zifeng Feng

Journal of Financial Research, 2023, vol. 46, issue S1, S163-S182

Abstract: This paper investigates corporate announcements related to the Russia‐Ukraine conflict of S&P 500 firms. We observe that firms withdrawing from Russia or suspending operations possess higher cash levels. Additionally, firms with more cash seem to announce withdrawals or suspensions more promptly. These findings suggest that cash levels are pivotal in how firms respond to geopolitical events. While cash does not seem influential when firms announce donations due to the conflict, it does affect the speed of such announcements. Social media also appears to play a significant role. Examining investor reactions to donation or withdrawal/suspension announcements, we report negative returns surrounding these announcements. Our paper underscores the critical role of cash reserves (i.e., financial flexibility) in shaping firm reactions to geopolitical events.

Date: 2023
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