The Impact of Financial Sanctions: The Case of Iran 2011-2016

Saeed Ghasseminejad and Mohammad Jahan-Parvar
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Saeed Ghasseminejad: https://www.fdd.org/team/saeed-ghasseminejad/

No 1281, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This study provides a detailed analysis of the impact of financial sanctions on publicly traded companies. We consider the effect of imposing and lifting sanctions on the target country's traded equities and examine the differences in the reaction of politically connected firms and those without such connections. The paper focuses on Iran due to (1) its sizable financial markets, (2) imposition of sanctions of varying severity and duration on private and state-owned companies, (3) the significant presence of politically connected firms in the stock market, and (4) the unique event of the 2015 nuclear deal, resulting in fairly rapid lifting of a sizable portion of imposed sanctions. We find that sanctions affect politically connected firms more than ordinary firms, have lasting negative effects on profitability ratios, and that politically connected firms stock prices bounce back more slowly after removal of sanctions. Firms targeted by financial sanctions decrease their leverage and increase their cash holding to manage their perceived increase in risk profile.

Keywords: National security; Financial sanctions; Political connections; Event study; Capital structure; Iran (search for similar items in EconPapers)
JEL-codes: D74 F51 G32 G39 H56 (search for similar items in EconPapers)
Pages: 41
Date: 2020-05-26
New Economics Papers: this item is included in nep-ara, nep-cfn and nep-cwa
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1281

DOI: 10.17016/IFDP.2020.1281

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