J Management Studies - 2023 - Gaur - Do Economic Sanctions Work Evidence From The Russia Ukraine Conflict

Journal of Management Studies 60:6 September 2023
doi:10.1111/joms.12933
Do Economic Sanctions Work? Evidence from the

Russia-Ukraine Conflict
Ajai Gaura , Alexander Settlesb and Juha Väätänenc

a
Rutgers Business School –Newark and New Brunswick; bWarrington College of Business, University of
Florida; cBusiness School, LUT University
ABSTRACT This study examines the impact of sanctions on Russian firms and the strategies
these firms adopt to counter the effects of targeted sanctions. We utilize institutional theory to
explain how firms shape their strategic responses as they balance the institutional pressures from
their home environment vis-à-vis sanctioning countries. We gather longitudinal data on Russian
firms that faced foreign sanctions from the start of the invasion of Crimea in 2014 until 2020.
Our empirical analyses indicate that sanctions do not have a persistent negative effect on the
economic performance of Russian firms. We discuss the empirical findings with the help of a
series of illustrative examples of specific actions that Russian firms undertook in response to the
sanctions. We conclude that while targeted sanctions create symbolic meaning in foreign rela-
tions and create financial friction for targeted firms, firms use a variety of adaptation strategies
that negate the economic impact of these sanctions.
Keywords: targeted sanctions, non-market strategies, institutional pressures, adaptation
strategies, Russia
INTRODUCTION
On 24 February 2022, after months of intense diplomacy and speculation, Russia in-
vaded Ukraine. In the weeks prior to this invasion, NATO allies, led by US President Joe
Biden, warned that any aggression into Ukraine would unleash ‘severe sanctions’ with
‘massive consequences’ for Russia. This threat was echoed by the leaders of the EU and
Address for reprints: Ajai Gaur, Rutgers Business School –Newark and New Brunswick, 1 Washington Park,
Newark, NJ 07102, USA (ajai@business.rutgers.edu).
The data used in this paper has been made publicly available and can be accessed from the website of the
first author (https://www.ajaigaur.com/research-resource) or the Harvard Dataverse website.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-
NoDerivs License, which permits use and distribution in any medium, provided the original work is
properly cited, the use is non-commercial and no modifications or adaptations are made.
© 2023 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies
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1392 A. Gaur et al.
other NATO allies on multiple occasions. Despite this threat, Russia began a full-blown
invasion of Ukraine. The international community led by the USA, NATO, and the EU
has further expanded the sanction regime since the February 2022 invasion. While many
foreign multinationals have exited Russia, there seems no end in sight for the conflict after
more than a year of intense fighting and sanctions. This begs an important question –do
sanctions have the desired economic impact on the targeted firms and individuals?
The use of international sanctions to deny access to international markets has a long
and rich history, from trade embargos of France during the Napoleonic Wars in the
early nineteenth century to the international economic sanctions of the apartheid gov-
ernment of South Africa in the 1980s to sanctions against Iraq in the 1990s and early
2000s (Alexander, 2009; Hufbauer et al., 2008; US Treasury, 2021). These embargoes
and sanction regimes have been used to weaken the nation-state in times of conflict and
war or to act as an alternative to a military conflict to cause a change in the targeted gov-
ernment’s policy. On some occasions, sanctions are used as an alternative to war with the
purpose of weakening and destabilizing the armed forces. There has been an increasing
reliance on sanctions in recent years. According to the Global Sanctions Database, there
were 405 active sanctions at the end of 2022, with about 300 of these coming into effect
in the past ten years (Felbermayr et al., 2020).
In examining the effectiveness of sanctions, a vast majority of the literature has fo-
cused on the effect of sanctions on trade, investment, and GDP growth in the target
and sanctioning countries (Hufbauer and Oegg, 2003; Kohl and Reesink, 2019). Studies
have also examined if sanctions worked in fulfilling their objectives, such as forcing the
sanctioned entities to comply with the wishes of the sanctioning country (Hufbauer and
Oegg, 2003; Jones, 2015). The evidence about the net effect of sanctions is mixed, with
some studies reporting some negative effect on the target country and its firms (Ahn and
Ludema, 2020), while others suggesting that sanctions do not always have the desired
effect of modifying a country’s policy and may have a limited economic impact on the
GDP and trade patterns of sanctioned countries (Shin et al., 2016). In this research,
there is a notable absence of firm-level studies as a vast majority of work focuses on ag-
gregate macro-level factors. Given that sanctions can alter the external environment of
business operations significantly, it is important to examine how the effect of sanctions on
firm-level outcomes (Meyer et al., 2023; Witt et al., 2023).
In this study, we focus on the reactions of Russian firms to sanctions imposed by the
USA and EU after the 2014 Russian annexation of Crimea by looking at their strategic
responses to institutional processes that resulted from the sanctions regime. As a result
of foreign sanctions, Russian firms faced a highly uncertain environment and needed to
satisfy the often-conflicting demands of their home institutional environment and the
pressures from the external (foreign) environment. The home-host institutional conflict
presented a unique situation for Russian firms to deploy a range of strategies that varied
from partnering with the home governments, attempting to avoid the impact of sanc-
tions, adapting through reorganizing global supply and distribution chains, and restruc-
turing subsidiaries. Our findings suggest that the impact of sanctions on the financial
performance of Russian firms varies with time. In the short term, we observe a perfor-
mance decline, but this effect diminishes over time. There are also important industry-
level variations in how sanctions impact Russian firms over time.
Economic Sanctions on Russian firms 1393
Our paper makes important empirical and theoretical contributions. Empirically,

we demonstrate the limited value of targeted sanctions imposed after Russia’s an-
nexation of Crimea. We argue and show that shielding by the Russian government
helped firms develop effective responses to mitigate the negative effect of sanctions.
The continuing resilience of the Russian economy since the February 2022 invasion
of Ukraine indicates that Russian firms have continued to adapt to the sanctions re-
gime. The delegitimizing impact of sanctions does increase the cost of doing business
in the international markets and may lead to opportunity costs related to lost interna-
tional collaboration. However, as we show with the help of a few examples, Russian
firms adopt a range of strategic responses that help them cope with and to reduce
the negative consequences of sanctions. In our post-hoc tests, we also show important
industry-level variations in the effectiveness of sanctions. These findings have impli-
cations for the design and implementation of the new sanctions on Russia as well as
for similar situations in other countries in the future.
Theoretically, the mechanism of shielding and adaptation to mitigate the effect of
sanctions contributes to the broader literature stream on firm responses to institutional
pressures. Previous work has examined how MNEs forged in weak institutional environ-
ments seek out riskier host-country environments to leverage their political capabilities
(Holburn and Zelner, 2010). We build on this literature to argue that Russian firms have
engaged in a series of strategic responses including tapping into their political capabili-
ties and connections to develop a shield against foreign sanctions and to work behind this
shield to adapt to the sanction regime. In examining the effect of sanctions on Russian
firms, which is of immense practical relevance in the current times, we respond to the
calls by leading scholars that research be more responsive to issues that impact businesses
and the larger society in a timely manner (Buckley et al., 2017; Delios, 2017; Fainshmidt
et al., 2021; Wickert et al., 2020).
THE CONTEXT: INTERNATIONAL SANCTIONS AND RUSSIA

Effectiveness of International Sanctions
Economic sanctions have a long and mixed record. While we have seen an increase
in the use of sanctions over the years, their ability to achieve the stated objectives
has been varied (Hufbauer et al., 2008). Notwithstanding the inconclusive findings,
the bulk of research to date has focused on the impact of sanctions on countries
and remarkably less on individual firms (Becker et al., 1990; Biersteker et al., 2016;
Cannes, 2000; Torbat, 2005). Yet, the direct economic consequences of sanctions are
felt, first on firms that, theoretically, are expected to put pressure on countries and
their leadership to change behaviour. The degree to which sanctions ‘bite’ depends
on a host of factors, including the ability of affected firms to mitigate, offset, avoid, or
otherwise lessen the impact of sanctions.
Extant literature, research indicates sanctions placed a significant economic strain
on countries and their financial markets. In the cases of South Africa (Becker et al.,
1990), Iraq (Cannes, 2000), and Iran (Torbat, 2005), sanctions led to a significant
1394 A. Gaur et al.
reduction in national economic growth and lowered living standards. In South

Africa, sanctions had a significant negative impact on several country-level economic
indicators, and these effects lasted for many years after the removal of sanctions
(Evenett, 2002). Another analysis of financial sanctions by Germany on 20 countries
from 2005 through 2014 shows a decline in the financial flows with the sanctioned
country (Besedeš et al., 2017). In the case of Russia, financial sanctions reduced the
capital market access of Russian banks and, subsequently, led to greater involvement
of the Russian government in the banking industry (Pak and Kretzschmar, 2016).
Similarly, Gurvich and Prilepskiy (2015) found significant declines in capital inflows
after the initial 2014 sanctions on Russia.
Despite the evidence about the negative effect of sanctions on certain country level
outcomes, sanctions have been criticized for failing to be effective in changing public
policy. Research examining sanctions from the 1940s to 1980s indicated that sanctions
worked only about 34 per cent of the time to affect targeted country policies (Hufbauer
et al., 1990). In the 1990s and 2000s, arguments were made that greater economic inte-
gration of individuals and firms into the global economy would increase the effectiveness
of sanction policy. However, research from this period indicated that sanctions seldom in-
duced their targets to change their behaviour (Bonetti, 1998; Dashti-Gibson et al., 1997).
More recently, Shin et al. (2016) examined the use of sanctions from 1970 until 2005 and
found that sanctions had limited economic effect and that multinational firms continued
to engage with the sanctioned states if such transactions were profitable. Even a war
between two states did not seem to have a consistently negative effect on trade and that
trade seems to recover after the conflict ends (Barbieri and Levy, 1999).
In terms of the reaction in the international business environment, there is limited re-
search on how firms react to targeted sanctions. The bulk of research to date has focused
on the impact of sanctions on countries and remarkably less on individual firms (Becker
et al., 1990; Biersteker et al., 2016; Cannes, 2000; Torbat, 2005). Yet, the direct eco-
nomic consequences of sanctions are felt, first on firms that, theoretically, are expected
to aggregate into pressure for countries and their leadership to change behaviour. The
degree to which sanctions ‘bite’ depends on a host of factors including the length and
intensity of sanctions, domestic industry globalization, trade patterns, and the ability of
sanctioned firms to mitigate, offset, avoid, or otherwise lessen the impact of sanctions.
Our empirical investigation helps identify some of these factors in the case of sanctions
against Russia after the invasion of Crimea.
Sanctions on Russia
The use of targeted economic sanctions to affect public policy changes in Russia origi-
nates in the US Government’s adoption of the Magnitsky Sanctions based on the Sergei
Magnitsky Rule of Law Accountability Act of 2012, which used targeted sanctions as a
response to specific actions of government officials concerning a US investor (Van der
Have, 2020). The Magnistsky sanctions began with a list of 18 individuals in April 2013
who were identified to have violated civil and human rights in Russia. This act forms
the basis of other sanctions covering 55 individuals from Saudi Arabia, Burma, Turkey,
Uzbekistan, and other countries. Targeted economic sanctions to influence Russian
government policy expanded after Crimea became part of the Russian Federation in
March 2014 (Dreger et al., 2016).
Sanctions were imposed in multiple rounds from March and April 2014 to July and
September 2014 and again in September and October 2017 (Bayramov et al., 2020).
There have been additions and subtractions to the list up to the current day, and a new
round of more restrictive sanctions coming into effect after the Russian invasion of Ukraine
in February 2022. The sanctions from 2014 to 2022 targeted firms and individuals active
in incorporating Crimea into Russia. The underlying logic of the sanction regime was to
target elites to influence Russian public policy and to target specific government and pub-
lic actors that were seen to be involved or benefit from the Crimean annexation.
The initial research on the economic impact of sanctions in Russia (Aalto and
Forsberg, 2016) indicated that sanctions led to slower economic growth and a reduction
of business for sanctioned firms. When sanctions were first imposed in 2014, Russian
manufacturing firms expressed concerns about the economic effects of sanctions
(Golikova and Kuznetsov, 2017). There is some anecdotal evidence suggesting a reduc-
tion in capital inflows to Russia due to restrictions that were placed on major Russian
companies and state banks. The decline in oil prices also had a significant impact on the
Russian economy in the post-2014 period (Oxenstierna, 2020). An analysis of the initial
impact of sanctions on firms in the oil and gas industry and the IT services industry in-
dicates that Russian firms were able to continue to upgrade their global value chains by
finding new sources of finance and suppliers (Abramova and Garanina, 2018). The first
round of sanctions impacted many Russian firms, such that they were forced to change
the sources of financing, supply chains, and their global operations (Scazzieri, 2017).
An examination of sanctioned firms and their international subsidiaries by Ahn and
Ludema (2020) found that sanctions negatively impacted targeted firm survival, revenue,
assets, and employment. The adverse effects of the sanctions were stronger for firms in
non-strategic sectors, while the impact on firms and subsidiaries in strategic industries
was weaker (Ahn and Ludema, 2020).
With no end in sight for the Russia-Ukraine conflict, it is important for IB scholars to
develop a more nuanced understanding about the effectiveness of sanctions. As more
countries are drawn into this conflict, it is important to note that Russia shares simi-
larities with many other emerging economies. The Russian economy is dependent on
commodity exports (The World Bank, 2021) and has an autocratic government with an
elite (Yakovlev and Ivanov, 2021) that could be pressured by international sanctions. The
involvement of oligarchs such as Roman Abramovich in peace negotiations during the
2022 ‘special military operation’ in Ukraine is a clear indication that the economic elite
in Russia continues to play a significant role in policy debates.
THEORY AND HYPOTHESIS

Firms’ Strategic Responses to International Sanctions
Given the above context, we utilize the institutional perspective to identify different
ways through which firms mitigate the negative impact of sanctions. Institutional
1396 A. Gaur et al.
theory provides a framework for understanding the societal process that shapes how
organizations are formed, operate, and react to the external environment (Scott, 1987).
Firms may be considered a product of their institutional environment as organiza-
tions seek legitimacy and gather the resources needed to implement their strategy. Not
only are firms a product of the environment, but they also shape those rules through
their actions and responses (Lawrence et al., 2011). Firms also develop organizational
capabilities that are reflective of the prevailing external institutions (Saka-Helmhout
and Geppert, 2011). In an economy such as Russia, with weak institutional structures,
corruption, and lower levels of property rights protection and rule of law, Russian
firms have developed organizational capabilities and resources to operate in a politi-
cized external environment.
The external institutional environment and firm capabilities determine firms’ stra-
tegic responses when facing external pressures. Oliver (1991) outlines these responses
as acquiesce, compromise, avoid, defy, and manipulate. Organizations, according to
this model, will resist institutional pressure when there are limited legitimacy and
economic gains from compliance. Oliver (1991) proposed that the likelihood of or-
ganizational resistance to institutional pressures is negatively related to the perceived
social legitimacy and the degree of economic gain that an organization perceives to
be attainable from conformity to institutional pressures. Constituents also matter to
an organization complying with institutional pressure. Increases in the number of
constituents and lower levels of external dependence on these constituents translate to
higher resistance to these institutional pressures. A key assumption in Oliver’s (1991)
typology is that there is a single institutional environment that the firm operates in.
We extend this model to include the comparative institutional analysis that incorpo-
rates competing national institutions. One aspect that we add to this model is how
firms collaborate with their home market institutions to allow the firm to defy the
institutional sanctions enacted in another country. The sanctions of Russian firms
due to the Crimean crisis are an example of where competing institutional processes
create this opportunity for conflict and leveraging of non-market strategies to defy
institutional constraints.
Targeted economic sanctions work when the sanctioned targets seek international le-
gitimacy and need access to international markets to maintain and grow their businesses.
These sanctions have evolved to increase pressure on elite groups that support authori-
tarian leaders and as a means to punish individuals suspected of political crimes (foreign
policy at the individual level) or crimes that were not investigated or prosecuted in their
home country (a form of extraterritorial jurisdiction). These sanctions deny access to
financial markets, block financial transactions, and block business relationships between
developed market MNEs and EMNEs. The sanctions also degrade individual and cor-
porate reputations (Biersteker et al., 2018; Drezner, 2011).
In the current Russian context, it could be argued that nationalism blunts the effect of
the collective economic pain on the nation. The Russian regime can shift the responsi-
bility for economic problems to hostile foreign sources, who are often portrayed as evil.
Moreover, authoritarian regimes can shift economic pain to opponents and disenfran-
chised groups. While such posturing can help Russian firms in maintaining local legiti-
macy, they may still face difficulties in foreign markets due to significant business interests
in the sanctioning countries (Aalto and Forsberg, 2016; Beauregard, 2021). These indi-
viduals can either try to dissociate themselves from the Russian regime in an attempt to
gain international legitimacy or remain in partnership with the Russian regime to main-
tain local legitimacy. However, dissociating with the local regime has significant costs as
the firms may lose legitimacy in the home environment. An alternate approach is to take
a mid-path and make a gradual attempt to gain international legitimacy by taking small
steps that would not harm local legitimacy. Regardless of the strategic approach to deal
with the conflicting demands of the home and host environment, sanctioned firms are
likely to experience some loss of legitimacy, which will lead to economic losses, at least
in the early phases. Previous research supports our contention that sanctions negatively
impact different firm-level outcomes (Ahn and Ludema, 2020; Bayramov et al., 2020;
Golikova and Kuznetsov, 2017; Oxenstierna, 2020). We expect that targeted sanctions
would reduce the economic opportunities a firm would have for cross-border trade and
may reduce their ability to finance both their domestic and international operations.
At the same time, firms actively try to mitigate the negative consequences of sanctions
and adopt one of the Oliver’s (1991) five strategies to respond to the external institu-
tional pressures. There has been a debate on whether the length of economic sanctions
increases or decreases the success of achieving the objectives of the sanctioning countries
and whether this leads to greater costs for the sanctioned country or to the restructuring
of the sanctioned economy to withstand the sanctions. On the one hand, it has been
argued that the effect of sanctions is seen only in the long run as sanctioned entities
usually have enough slack resources to buffer the effect of sanctions in the short run. At
the onset of the latest round of Russia sanctions, President Biden acknowledged this by
saying that sanctions are ‘going to take time’ to have their effect on the Russian economy.
On the other hand, there is the counter-argument that the effectiveness of sanctions di-
minishes over time as the economy and its actors develop counter strategies to minimize
the damage.
The anecdotal and empirical evidence is more in line with the view that the effective-
ness of sanctions reduces over time. Dashti-Gibson et al. (1997) found empirical support
that the longer sanctions last, the less effective these sanctions are at reaching the sanc-
tioning countries’ objectives. The countermeasures that a country engages in seem to re-
duce the effectiveness of sanctions, and centralized and concentrated political authority
allows a sanctioned country to develop and implement these countermeasures (Bolks and
Al-Sowayel, 2000). In the case of South Africa, Coulibaly (2009) found that sanctions
did cause a decrease in investment but that the economy and firms adapted to the lack
of access to the international financial system. More recently, Dorff and Minhas (2017)
found that international compliance with sanctions declined over time.
In the Russian context, anecdotal evidence shows Russian firms utilized a number of
strategies to mitigate the negative effects of sanctions. For example, EN+, a large Russian
aluminium producer, was sanctioned US Department of Treasury in 2018 (OFAC, 2022).
These sanctions were based on EN+’s largest shareholder Oleg Deripaska’s alleged US
election interference and his strong and well-documented political ties to the Russian
leadership. EN+ and its largest shareholder Deripaska implemented several governance
changes to bring more transparency. These actions included the nomination of an inde-
pendent board of directors, and nominating, Greg Barker, a member of the House of
1398 A. Gaur et al.
Lords in the UK, as the Chairman of the Board of EN+, to help remove the sanctions
(Reuters, 2018; Sheppard, 2018). These strategic responses fall under the category of
compromise in Oliver’s (1991) terminology. We provide more details on this and a few
other examples later in the paper.
It is important to note that sanctions may have an immediate negative effect on the
sanctioned entities. However, sanctioned individuals and firms try to circumvent these
sanctions through restructuring and adaptation in the long run (Biersteker et al., 2018).
There are two reasons why firms may be more successful in reducing the effect of sanc-
tions over time. First, with time, there is a reduction in the conflicting institutional pres-
sures imposed by the home environment and the external environment. As the home
government tries to shield its economy, firms get more wiggle room to pursue strategies
to deal with sanctions without worrying about losing legitimacy in the home environ-
ment. Even when firms restructure to comply with international demands, there is
a greater acceptance of such an approach as people, and other actors in the home
country see the success of their firms from a nationalistic lens. Second, firms also learn
and become adept at dealing with sanctions over time. The strategic adaptation and
restructuring may take several months or years to show visible results. In the Russian
case, early evidence indicates that firms have engaged in restructuring and other activ-
ities to negate the effect of international sanctions (Ahn and Ludema, 2020). As firms
restructure international connections and ownership structures and adapt to the new
institutional framework, the initial decline in economic performance due to sanctions
will be attenuated over time. Accordingly, we propose the following hypothesis:
Hypothesis 1 Targeted sanctions have a negative impact on the economic perfor-

mance of sanctioned firms, and this effect diminishes over time.
Potential Contingencies
The effect of sanctions may not be the same for all firms as firms differ in their capacity
to respond to institutional pressures. Some firms, such as state-owned enterprises, may
face greater pressure to comply with the demands of the home environment and defy
those from the external environment. Private enterprises, on the other hand, may be able
to respond to the pressures of the external environment without a significant loss of local
legitimacy. Such differences in the capacity of state-owned and private enterprises are
well documented in extant literature (Estrin et al., 2016).
The Russian government has a long history of involvement in private and publicly
listed firms, including ownership and other forms of state involvement in the private sec-
tor. In general, the state involvement in less market-oriented economies, such as Russia
and China, has been helpful in providing scarce resources to firms as they pursue growth
opportunities, both domestically and internationally. However, state involvement also
comes at significant costs, as firms may be forced to pursue non-economic objectives. In
the context of sanctions, we anticipate that state ownership is likely to be beneficial for
Russian firms as the state may shield domestic firms by providing resources for invest-
ment and innovation (Grosman and Leiponen, 2018). We examine this as a potential
contingency in post-hoc empirical analysis.
Similar to the role of the state, the nature of specific industries may also impact how
sanctions impact firms (Oxenstierna, 2020). We would expect that firms that operate in
industries that are highly globalized and integrated into the global trade system would
face greater negative economic consequences from international sanctions. Firms that
operate primarily in the domestic market may have been cut off from international
sources of finance, but they also have lower exposure to the international marketplace.
We analyse the industry globalization using industry level international linkages (Makhija
et al., 1997), but it is important to note that there are significant differences in the nature
and extent of globalization of different industries. Therefore, we treat this as an empiri-
cal question and examine it in post-hoc tests.
METHODS AND RESULTS

Sample and Data
We conduct our analysis on a longitudinal sample of 37,960 sanctioned and non-
sanctioned Russian firms (378,134 firm-year observations). We compiled our firm-level
data from three primary sources: Orbis database from Bureau van Dijk, US Sanctioned
companies and individuals lists from the Office of Foreign Assets Control (OFAC) and lists
of persons and entities affected by EU sanctions as issued in Council Decision 2014/145/
CFSP (concerning later amendments). The data was compiled from November 2019 to
March 2021 and accounted for all recent revisions in sanctioned companies lists issued
by US and EU sanctioning organizations.
The combined list of sanctioned entities consists of 479 organizations. For the anal-
ysis, non-corporate entities such as political parties, movements, military organiza-
tions, and companies registered outside of Russia (including companies registered
in Crimea and foreign subsidiaries of sanctioned Russian companies) were excluded
from the database, resulting in a sample size of 355 firms. We were able to find 347
companies in the Orbis database. Since our analysis examines the longitudinal effect
of sanctions on firm performance, we excluded firms that were sanctioned after 2016.
To ensure complete data for the studied firms, we only allowed for a maximum of
two years of missing data over the ten-year period from 2011 to 2020. These restric-
tions reduced the sample of directly sanctioned firms to 180 entities. We expanded
the set of firms affected by sanctions to include 1073 Russian subsidiaries of the di-
rectly sanctioned firms. The subsidiaries were selected based on the ultimate owner
information provided in the Orbis database. Even though these companies were not
explicitly designated by the USA or EU, they can also be affected by the sanctions
imposed on the ultimate owner. We considered these firms to be indirectly sanctioned.
In online Appendix S1, we list some examples of the analyses we undertook to map
out the connections between sanctioned entities, political authority, and their roles in
Ukraine and Crimea.
Next, we collected the data for peer groups of non-sanctioned Russian firms from the
same industry sector (we used 4-digit NACE rev.2 codes as well as higher order group-
ing to determine the industry). The control group consisted of 36,707 firms. The total
1400 A. Gaur et al.
sample (including directly sanctioned firms, their non-sanctioned subsidiaries, and peer
group) was 37,960 companies. Our data collection methodology is similar to Ahn and
Ludema (2020) with two exceptions. First, we collected data over a longer period of time,
extending the data collection from 2016 to 2020. Second, we selected sanctioned firms
that are based in Russia. Our panel data covers the period from 2011 to 2020 and con-
sists of 378,134 firm-year observations (the exact number of firm-year observations in
different models varies due to missing data and different time periods selected). In online
Appendix S2, we show the distribution of sanctioned firms, their subsidiaries, and the
peer group by industries and years.
Variables
Dependent variables. To assess the company’s economic performance, we analysed the
changes in revenues and employment. All dependent variables were in logarithmic
form.
Explanatory and control variables. The primary explanatory variable of interest was a dummy
showing whether the company was sanctioned or not. To analyse the effect of sanctions
on non-sanctioned subsidiaries, we created another dummy variable that took a value
of one when the company’s ultimate owner (as indicated in the Orbis database) was
sanctioned and zero otherwise. To control for government ownership, we used the
dummy variable, which equals one when the company’s ultimate owner is a state (Russian
government, federal districts, federal cities, regional or municipal governments) and zero
otherwise. We controlled for size by taking a natural logarithm of total assets. To control
for the country’s overall economic development, we adopted two variables: annual GDP
growth and logged real GDP. To avoid possible reverse causality issues the GDP variables
were lagged by one year (Shin et al., 2016). Finally, we measured the globalization of
industries following the approach suggested by Makhija et al. (1997). We used the
Economic Complexity Ranking (OEC) data which is based on BACI bilateral trade
flow data (Gaulier and Zignago, 2010) and Rosstat data (total production by industry).
To link the products with specific industries, concordance tables from World Bank and
UN Statistics were applied (see Appendix S4a for additional details of globalization
level assessment). We list all variables and their sources in online Appendix S3a and the
summary statistics in online Appendix S3b.
Econometric Approach
In our empirical analysis, we adopted an approach comparable to Ahn and
Ludema (2020) with a few modifications. First, we complement the baseline model
with firm and country-level control variables. Second, we separated sanctioned firms
from their non-sanctioned subsidiaries creating independent models for the estima-
tion effect of sanctions on these two groups of firms. Third, in addition to the direct
effect of sanctions, we explored the interaction effects using the industry variable,
thus accounting for sanction impact on specific industries (for that we used a higher-
order NACE classification). Finally, we extend the prior works by considering two
periods, 2011–16 and 2011–20, to capture both the initial impact of sanction as well
as the long-term outcomes after the initial shock.
Results
Table I presents the estimation of the model of sanctions on the economic performance
of directly sanctioned Russian firms. The models that evaluated short-term sanctions
impact (2011–16) indicate that sanctions had mixed results on sanctioned firms. The
positive and significant coefficient on the dummy variable for sanctioned firms shows an
increase in turnover for sanctioned firms compared to their non-sanctioned peers. The
coefficient for employment is also positive and significant. When considering the effects
over a longer time horizon by expanding our time frame from the 2011–16 period to the
2011–20 period, the impact of sanctions on turnover and employment remains positive
and significant and even increases. Considering the role of government ownership, the
coefficient is negative and significant for turnover over the short-term but non-significant
(although still negative) over the long-term. For employment the effect of government
ownership is positive but nonsignificant for the short-term and becomes negative and
significant for long-term. Overall, our findings suggest that on average sanctioned com-
panies do not demonstrate a significant drop in performance compared to their non-
sanctioned peers, either in the short-term or in the long-term.
Next, we analyse the impact of sanctions on those subsidiaries of sanctioned firms
that were not explicitly designated either by the USA or by the EU. Table II presents
these results. On average, sanctions do not seem to have a significant effect on sub-
sidiaries. We find a significant positive effect of sanctions in only in one short-term
model (2011–16) during which imposing sanctions on the parent company led to a
positive effect on subsidiary turnover. Over the longer time horizon (2011–20) the im-
pact of the sanctioned parent company is not significant either for subsidiary turnover
or for employment. It is plausible that firms and government were prepared to deal
with the sanctions even before the sanctions were imposed. We discuss these possibil-
ities in our post-hoc analysis.
POST-HOC ANALYSES
Additional Empirical Tests
The empirical tests discussed above do not show a significant negative effect of sanctions
on the turnover or employment in sanctioned Russian firms or their subsidiaries. This is
contrary to our theoretical prediction and the general findings in the literature that suggest a
negative effect of sanctions on country-level indicators. We conduct additional tests to assess
the robustness of our findings (see Appendix S4b for robustness check) and further under-
stand if there are industry-level variations in how sanctions impact firms (Appendix S4a).
Our results suggest that firms in professional, scientific, and technical activities and admin-
istrative and support service activities experienced a short-term drop in turnover after their
parent companies were sanctioned (see Table II).
1402 A. Gaur et al.
Table I. Impact of sanctions on the economic performance of Russian firms with control for governmental
ownership
Dependent variable Turnover (ln) Employees (ln)
Time period 2011–16 2011–20 2011–16 2011–20
Directly sanctioned 0.239* (0.008) 0.305* (0.005) 0.574* (0.004) 1.338* (0.004)
Directly sanctioned with −0.392** (0.199) −0.343 (0.263) 0.079 (0.085) −0.427** (0.189)
state ownership
Size (ln, assets) 0.788* (0.009) 0.846* (0.007) 0.233* (0.004) 0.260* (0.005)
GDP growth (ln, lagged) 0.077* (0.001) 0.050* (0.001) −0.088* (0.001) −0.144* (0.001)
GDP real (ln, lagged) −0.152* (0.016) 0.327* (0.016) 0.466* (0.009) 2.426* (0.016)
Constant 3.280* (0.170) −1.708* (0.172) −2.070* (0.092) −21.043* (0.155)
Effect of direct sanctions on firms belonging to specific industry sector (interaction)
Mining and quarrying 0.436 (0.272) 0.292 (0.243) −0.199 (0.542) −0.110 (0.583)
Manufacturing 0.398* (0.154) 0.244 (0.208) −0.642* (0.084) −0.445** (0.203)
Electricity, gas, steam and 0.718 (0.377) 0.566 (0.560) −0.765* (0.087) −1.179* (0.312)
air conditioning supply
Water supply; sewerage, −0.149 (0.571) 0.297 (0.167) −0.354 (0.287) −0.850* (0.295)
waste management and
remediation activities
Construction 0.312 (0.244) −0.283 (0.459) −0.550** (0.272) −1.381* (0.324)
Wholesale and retail 0.235 (0.133) −0.181 (0.203) −0.666* (0.070) −1.336* (0.223)
trade; repair of motor
vehicles and motorcycles
Transportation and 0.184** (0.087) 0.020 (0.083) −0.765* (0.070) −0.773* (0.074)
storage
Accommodation and food −0.346 (0.285) −0.496 (0.287) −0.851* (0.001) −2.477* (0.918)
service activities
Information and −0.276 (0.551) −0.484 (0.615) −0.495** (0.208) −0.363 (0.567)
communication
Financial and insurance 0.259 (0.271) −0.186 (0.375) −0.489** (0.193) −1.070* (0.396)
activities
Real estate activities 0.535 (0.345) 0.001 (0.690) −0.333* (0.098) −1.166* (0.416)
Professional, scientific and −0.097 (0.205) −0.313 (0.257) −0.673* (0.080) −0.938* (0.207)
technical activities
Administrative and sup- 0.798* (0.199) 0.500 (0.263) 0.246* (0.085) 0.124 (0.189)
port service activities
Human health and social 0.115* (0.001) 0.010* (0.001) −2.115* (0.001) −2.134* (0.001)
work activities
No. of Observations 89,696 145,774 93,404 151,685
R-squared 0.370 0.349 0.285 0.221
Note: The number of observations between models differs due to missing data. Robust std. errors are in parentheses;
*p < 0.05, **p < 0.01.
When we examine the interaction between the industry sectors with the sanction
dummy, we find some interesting results as shown in Table I. Our results in Table I reveal
the diversity in the sanction effect on companies belonging to different industry sectors.
Firms in export-oriented industries are less affected by sanctions as compared to firms in
low-exporting industries. Moreover, in industries with a higher share of exports, such as
mining and quarrying, and manufacturing, firms mitigate the negative effect of sanctions
more than firms that operate in more domestically oriented industries. In industries such
as professional, scientific, and technical activities, the effect on the number of employees
becomes increasingly negative over a longer time period.
Consequently, our results do not support a uniformly negative effect of sanctions on firm
performance. Companies from some economic sectors demonstrate more resilience in mit-
igating the sanctioning effect. Such industries play a major role in Russia exports (such as
mining and quarrying) and their products are difficult to substitute. State ownership does
not have a positive impact in terms of moderating the effect of sanctions on state-owned
firms. However, we found limited positive effect of sanctions on average, which could be due
to some kind of state support for the sanctioned firms. Based on our results we propose that
government-supported (shielded) sanctioned firms in general. The selection of sanctioned
firms and individuals was not a random act, the sanctions were directed at entities that had
clear connections to the Russian government and President Putin.
To summarize, our analysis does not reveal any negative effect of sanctions on com-
panies’ turnover and employment. In the short term, directly sanctioned firms (and their
non-sanctioned subsidiaries) demonstrate some advantage over their non-sanctioned
peers with respect to turnover, which in some cases persists in the longer time period.
In the next section, we discuss some probable explanations for these counter-intuitive
findings with the help of a few illustrative examples.
Illustrative Examples of Firm-Level Adaptation Strategies

Our results are counter intuitive. The popular media narrative has been that sanctions
on Russia are effective. There has also been evidence from other contexts that strong
sanctions negatively impact the targets, at least in the short term. However, our results
suggest that, in some cases, sanctioned companies appear to have better performance
indicators than their non-sanctioned peers. Moreover, the results on subsidiary perfor-
mance indicate that sanctioned companies may reorganize their subsidiaries’ networks to
further diminish any negative effect of sanctions. It is plausible that this mitigation of the
effect of sanctions happens mainly due to shielding provided by Russian governmental
institutions. However, we argue that there are firm-level adaptations that go beyond the
shielding activities of the Russian government. In fact, Russian firms anticipated sanc-
tions and responded to them through a set of strategic and non-strategic actions that
allowed sanctioned firms to effectively deal with any potential negative consequences of
sanctions. While sanctions have been applied across the Russian economy, those sanc-
tions that have targeted significant economic actors that are close to President Putin are
relatively narrow.
Failing to find support for the hypothesis regarding the term negative impact of
sanctions on the economic performance of targeted firms, we examined the strategic
1404 A. Gaur et al.
Table II. Impact of sanctions on the economic performance of non-sanctioned Russian subsidiaries
Time period 2011–2016 2011–2020 2011–2016 2011–2020
Parent company directly 0.388** (0.151) 0.202 (0.189) −0.265 (0.176) 0.047 (0.260)
sanctioned
Sanctioned with state −0.071 (0.087) −0.068 (0.086) −0.069 (0.046) −0.065 (0.069)
ownership
Size (ln, assets) 0.783* (0.006) 0.846* (0.005) 0.239* (0.003) 0.285* (0.003)
GDP growth (ln, lagged) 0.059* (0.001) 0.036* (0.001) −0.085* (0.001) −0.127* (0.001)
GDP real (ln, lagged) −0.106* (0.009) 0.292* (0.009) 0.459* (0.005) 1.892 (0.010)
Constant 2.845* (0.104) −1.400* (0.107) −1.954* (0.059) −16.013* (0.104)
Effect on industry sector
Mining and quarrying −0.126 (0.263) 0.212 (0.283) 0.104 (0.192) 0.040 (0.278)
Manufacturing −0.256 (0.155) −0.143 (0.198) 0.144 (0.177) 0.037 (0.265)
Electricity, gas, steam −0.243 (0.177) −0.152 (0.215) 0.204 (0.189) 0.1536 (0.288)
and air conditioning
supply
Water supply; sewerage, −0.597 (0.361) −0.161 (0.298) 0.080 (0.184) 0.064 (0.310)
waste management and
remediation activities
Construction −0.571 (0.340) −0.190 (0.358) 0.536** (0.236) −0.136 (0.317)
Wholesale and retail −0.341** (0.167) −0.207 (0.203) 0.106 (0.184) −0.001 (0.268)
trade; repair of
motor vehicles and
motorcycles
Transportation and −0.244 (0.168) −0.085 (0.212) 0.183 (0.183) 0.022 (0.277)
storage
Accommodation and 0.089 (0.337) 0.114 (0.404) 0.195 (0.196) 0.167 (0.300)
food service activities
Information and 0.192 (0.276) 0.323 (0.290) 0.554* (0.214) 0.249 (0.309)
communication
Financial and insurance −0.380 (0.301) −0.456 (0.335) 0.200 (0.193) −0.306 (0.295)
activities
Real estate activities −0.104 (0.236) −0.010 (0.239) 0.341 (0.189) −0.234 (0.285)
Professional, scientific −0.331** (0.158) −0.281 (0.199) 0.228 (0.177) 0.0369 (0.262)
and technical activities
Administrative and −0.344** (0.173) −0.196 (0.317) 0.346 (0.224) −0.196 (0.431)
support service activities
Education −0.506 (0.269) −0.376 (0.327) 0.146 (0.190) 0.166 (0.282)
Human health and social 0.311 (0.592) 0.186 (0.451) 0.202 (0.192) 0.0421 (0.297)
work activities
Arts, entertainment and −0.324 (0.471) −0.186 (0.410) 0.421 (0.291) 0.294 (0.352)
recreation
(Continues)
Table II. (Continued)
Time period 2011–2016 2011–2020 2011–2016 2011–2020
Other service activities −0.245 (0.162) −0.518 (0.439) 0.130 (0.184) 0.069 (0.269)
No. of Observations 210,952 344,479 217,377 354,570
R-squared 0.369 0.350 0.297 0.195
Note: The number of observations between models differs due to missing data. Robust std. errors are in parentheses;
*p < 0.05, **p < 0.01.
responses of individual Russian firms to the conflicting pressures imposed by the home
environment in Russia and the host environment in Western countries where Russian
firms have their subsidiaries. We analysed the strategic responses of representative sanc-
tioned firms in Russia’s main industry sectors to understand how Russian firms reacted
to the targeted sanctions by the United States (OFAC, 2022) and European Union (EU
Commission, 2022). The use of these illustrative cases studies allows us to better rec-
oncile the theory with our contextual findings and to provide what Welch et al. (2022)
refer to as ‘interpretive sensemaking’ (or ‘contextualized explanations’). In the case of
sanctions on Russian firms, the ownership structure of these firms, the interconnections
between owners of major firms and Putin, and the unique Russian context, all play a role
in explaining the counter-intuitive findings about the effect of sanctions on economic
performance of Russian firms.
We examine a cross-section of Russian firms to understand the variations in strategic
responses depending on industry sectors and ownership type of different companies.
Since the period of economic liberalization, Russian firms have gradually increased their
international footprint and sought international legitimacy. With the adoption of sanc-
tions after the Crimea invasion in 2014, these firms faced a challenging institutional envi-
ronment both domestically and in foreign countries and engaged in actions to strategically
respond to targeted sanctions. In a structured attempt to understand the behaviour of
sanctioned Russian firms we classified targeted sanctions in terms of the following com-
pany functions: access to global supply chains (technology and other resources), access to
finance, ownership structure, and international business delegitimization.
We selected five illustrative firms based on the following criteria. First, we focused on
five major industrial sectors of Russia, namely energy, heavy metals, engineering, and
defence industries, and banking and finance. Some of the well-known Russian firms
operate in these sectors due to historical advantages that these firms have in the Russian
economy (Iwasaki et al., 2018). Within this section, we identified firms where the ultimate
owner of the economic asset was sanctioned by either the USA or EU. Amongst the
sanctioned firms in these sectors, we selected well-known publicly listed firms as these are
followed by market analysts and the news media. Finally, we recognized the high con-
centration of ownership in the Russian economy with a significant role for oligarchs and
government in the ownership structure of Russian firms (Guriev and Rachinsky, 2005).
In selecting firms for further analysis, we tried to avoid having more than one firm from
the same oligarch and include one firm without government ownership.
1406 A. Gaur et al.
In the energy sector, we reviewed Lukoil, the second largest oil producer and Russia’s
most international company measured by international assets. In the metal sector, we
selected EN+, the largest Russian aluminium producer that is controlled by a politi-
cally well-connected Russian oligarch. In the engineering sector, we examined the larg-
est commercial vehicle manufacturer GAZ as a manufacturing firm with an extensive
global supply chain and controlled by a powerful oligarch. In the defence sector, we
chose Rostec, a state-owned defence material and equipment manufacturer. Finally, in
the financial sector, we analysed the state-owned financial institution VEB.RF. In un-
derstanding the strategic responses of these selected firms, we started with the data col-
lected from Orbis and company websites which we supplemented from media sources
such as Google News, EBSCO –Business source complete, and company press releases.
Data was collected from the date of sanction for a specific firm to the end of 2021.
Appendix S5 includes a detailed description of the strategic responses of each of these
firms, along with the data used in our analyses. Below we summarize the findings based
on these illustrative examples.
Our analysis of selected Russian firms indicates that strategic responses vary across in-
dustry sectors, consistent with the varying effect of interaction between industry sections
and sanction dummy in Tables I and II. In all sectors, management-led strategic response to
mitigate the effects of sanctions is evident. Two companies managed to mitigate sanctions
risks mainly with their own strategic responses. In the financial sector, we found evidence of
robust governmental shielding. In two cases, a significant part of sanction mitigation was an
engagement in international lobbying efforts, which in one case led to a positive outcome
of reversing sanctions through the application of corporate political strategies. Overall, the
case studies demonstrate a significant variation in sanction effects between sectors, and that
some companies needed government shielding, but the majority did not.
All five companies we studied have international operations and rely on interna-
tional financing; thus they have a legitimate position to protect. State ownership, stra-
tegic importance to the economy, and the value of the firm to Russia’s international
prestige seem to be important factors in how Russian firms shape their strategic re-
sponse to the external environment. Table III classifies and summarizes the strategies
and tactics applied by each of the case companies within the framework proposed by
Oliver (1991).
Our analysis also reveals that sanctioned firms face two competing institutional frame-
works that they need to operate within. Russian firms responded by either complying
with one or both institutional environments or avoiding, defying, or manipulating the
institutional environments to minimize the economic damage of the sanctions imposed
on them or their subsidiaries. The strategic response selected by the sanctioned firm
depended on the companies’ international linkages in terms of foreign-owned assets,
the importance of exports, and sources of finance along with the expected Russian
government backing through a variety of ‘shielding’ mechanisms. Companies with in-
ternational assets and exports tended to acquiesce, compromise, and avoid the impact
of sanctions while these responses changed over time as the sanctioned company faced
either continuing sanctions or expanded sanctions. The representative financial sector
company with strong government support tended to avoid and defy sanctions and could
rely on Russian government support due to its strategic importance in implementing
Table III. Russian case companies’ strategic responses to sanctions
Strategies Tactics Lukoil EN+ GAZ VEB.RF Rostec
Acquiesce Habit International asset

divestments
Imitate Change in board
composition and
ownership
Comply International asset
divestments
Compromise Balance Domestic supply chains Change in board
composition and
ownership
Pacify
Bargain Change in board
composition and
ownership
Avoid Conceal
Economic Sanctions on Russian firms
Buffer
Escape Domestic supply chains Domestic supply Strategic domestic
chains, new markets reorientation
(Continues)

1407
Control
ence sanctions
tions to influ-
Covert opera- Influence
Co-opt Manipulate
letter
A. Gaur et al.
US embassy, public
Demonstrations at Attack
sanctions letter
despite reorientation US embassy, public
Delivering Strategic domestic Demonstrations at Challenge
reorientation
Strategic domestic Dismiss Defy
Rostec VEB.RF GAZ EN+ Lukoil Tactics Strategies
Table III. (Continued)

1408
government policy and government ownership. The firm with ties to the defence indus-
try sector engaged in defying foreign institutional constraints and manipulating both the
Russian and international institutional framework to overcome the impact of sanctions.
These firms also relied on government ownership and government contracting to limit
the impact of sanctions.
DISCUSSION AND CONCLUSION

In this study, we have examined the impact of targeted sanctions on Russian firms. The
results of targeted economic sanctions have been mixed. There are some short-run negative
economic costs to sanctioned firms, but in most cases, sanctions do not have any negative
consequence for either the turnover or employment in Russian firms. Moreover, the perfor-
mance of Russian firms improves over time, suggesting that firms develop robust strategies
to deal with any potential negative consequences sanctions. Our analysis of a few illustrative
examples suggests that Russian firms get robust support from the government and have been
quick to adapt and restructure their economic interests to avoid the negative consequences
of sanctions. The sanctioned entities have responded to the institutional constraints by re-
structuring their interactions with international partners and lobbying the Russian govern-
ment to shield them from the negative impact of these sanctions. The majority of strategic
responses of Russian firms fall into the five categories suggested by Oliver (1991): acquies-
cence, compromise, avoidance, defy, or manipulate. Pursuing a combination of these strate-
gies seems to have helped Russian firms even when the home and host environment impose
conflicting demands for internal and external legitimacy.
The expansion of Russian MNEs into the international financial markets, the
global supply networks, the development of international joint ventures and alliances,
and foreign merger and acquisitions transactions of the 2000s and early 2010s led to
greater integration of Russian firms into the international market, greater transpar-
ency of ownership, and improvements in corporate governance. Russian oligarchs
have long dominated the Russian economy (Guriev and Rachinsky, 2005) and con-
trolled the international business activities and foreign direct investment activities of
Russian MNEs. The concentration of control and the desire to develop international
legitimacy by Russian elites and the Russian government should mean that Russian
MNEs would be vulnerable to targeted economic sanctions but would also be quick to
adapt to the demands of the sanctioned environment. A case in point is the Russian
energy sector. After the EU imposed a ban on the import of Russian oil and put
a price cap of USD 60 per barrel for using EU-based shipping lines, the share of
Russian crude oil in India’s oil imports increased from less than 1 per cent to about
35 per cent. It is possible that sanctions lead to the trade shifting from the USA and
Germany to China, India and Turkey with active government shielding by way of
securing contracts for Russian firms. This could explain why Russian firms may have
experienced improved economic performance.
The implications of continued and future sanctions targeting Russian individuals and
Russian firms associated with the government may include a shift in patterns of invest-
ment, the restructuring of ownership and a return of nominal ownership structures that
hide Russian ownership, the intervention of Russian oligarchs and Russian firms into
1410 A. Gaur et al.
US and EU political systems to counter-sanctions, and an overall economic slowdown

as Russian MNEs reduce their investment and international business activities. We do
know that the sanctions did not deter the Russian government from changing its pol-
icies. By mid-2022, the sanctions did not achieve the foreign policy goals of settling
the Ukrainian –Russian conflict or led to a thorough investigation into the death of
Magnitsky. Sanctions have added to the anti-American and anti-Russian feelings in each
respective country. Moreover, the reaction of the Russian government has been to in-
crease its involvement in working to remove sanctions and put pressure on Russian firms
to reformulate their strategies to do business and invest in countries that are not sanction-
ing Russian firms or individuals. In the future, adaptation mechanisms will be made in
anticipation of future sanctions and pre-response to expected sanctions since companies
gain significant knowledge of how sanctions work.
The events of February and March 2022 demonstrated the limitations of targeted
economic sanctions to shape the foreign policy of a sovereign state. The increasing tight-
ening of sanctions since the Russian invasion of Ukraine has created economic damage
to Russian firms and the departure of many foreign multinationals from the Russian
market (Lee and Chung, 2022). However, as of February 2023, sanctions have not led to
a cessation of Russian military action or a modification of Russian foreign policy. In a
similar vein to the research conducted on twentieth-century sanctions (Dashti-Gibson et
al., 1997), sanctions on Russia over its actions in Ukraine since 2014 have had a limited
effect on government policy. The continuing resilience of the Russian economy indicates
that Russian firms have adapted to the negative international environment. According
to the IMF the Russian Federation had a lower actual decline in GDP in 2022 than
predicted and the IMF’s predictions for 2023 indicate slight growth in Russian GDP
(International Monetary Fund, 2023).
Our study builds on the recognition that there are multiple and competing sources
of institutional pressure on multinational firms. Recent research on Chinese firms in-
dicates that firms face a legitimacy dilemma from contradictory expectations and pres-
sures (Li et al., 2022). The polylithic approach to conceptualizing contradictory political
pressures provides a window into firms’ strategic responses as they attempt to navigate
between competing institutional pressures. In terms of sanctions, Russian firms are be-
tween a rock (Scylla) of denial of access to international markets and a hard place
(Charybdis) of being pulled into defending the positions of the Russian government and
president. The strategic response of Russian firms provides further evidence of firms
engaging in seeking benefits in an exchange relationship (Li et al., 2022) where legiti-
macy to operate within conflicting institutional environments is based on the degree of
political loyalty.
We found that firms utilize both non-market and market strategies in their strategic
responses to each institutional environment. Russian firms have for decades operated
in weak institutional environments and those that have survived have developed strong
political connections to the established institutional environment and continue to rely on
those connections even in times when those connections lead to international sanctions.
These firm capabilities have allowed Russian firms to survive the onslaught of targeted
sanctions since 2014 and to adjust their international presence to conform to multiple
institutional environments.
We should note that the sanctions on Russia have evolved significantly as the external
environment develops and the institutional preferences and pressures change. In the case
of Russia, the use of sanctions to target officials related to Magnistky case was a new ex-
tension of targeted sanctions which had previously been used to target drug traffickers,
terrorists and other criminals that could not be brought to justice. The intent behind
these sanctions was to put pressure on specific government officials and oligarchs close
to President Putin. This was expected to create elite pushback on government policies
and constrain the financial and international development activities of Russian firms that
were either directly or indirectly engaged in activities within Crimea. Prior to the 2022
Russian-Ukraine conflict, targeted sanctions allowed the international community to deny
access to dual use technology and supplies for the Russian military. This has likely limited
Russian firms’ abilities to build military equipment and to source the repair parts. The
use of repurposed civilian technology is a clear example of the desperation that targeted
sanctions seem to have created for the Russian military establishment. But there remain
limits on the effectiveness of targeted sanctions. It is possible that the Russian government
has engaged in more aggressive shieling of the firms that are impacted by sanctions, which
may explain our finding that sanctions do not have a negative impact on Russian firm.
The overarching objectives of sanctions may vary from situation to situation with the pre-
vious experiences helping sanctioning countries refine the nature and type of sanctions.
We hope that our study’s findings encourage future scholarship in this domain to identify
the nuances of how and what types of sanctions may be more effective than others.
We also contribute by highlighting the strategic actions that allow emerging mar-
ket firms to adapt in the face of international sanctions. There has been only a lim-
ited investigation due to data limitations to understand how sanctioned firms adapt.
Targeted sanctions were traditionally used as civil penalties for individuals or firms
that could not be held criminally responsible for their actions, such as drug dealers
and terrorists. With the systematic expansion of targeted sanctions as a policy tool
for nation-states to implement foreign policy, the debate has focused on either the
economic impact or the effects on the political elite and whether this has shaped the
target country’s policy. We do not have clear evidence that sanctions work at either
level and we propose that this may be due to the fact that sanctioned entities utilize a
variety of strategies that negate the intended effects of sanctions. Indeed, our quan-
titative and qualitative analyses show that strategic adaptation by emerging market
firms dissipates the impact of sanctions. This would imply that monitoring of sanc-
tion effectiveness is necessary, and firm-level strategic adaptation should be countered
with new rounds of sanctions. Moreover, given the nature of politically connected
firms, sanctions may further drive these firms into the arms of their home govern-
ments. We hope our study encourages policymakers to rethink the strategies so that
sanctions achieve their intended objectives.
Beyond the empirical and theoretical contribution that this paper makes the policy
implications on this research indicates that Russian sanctioned firms were able to adapt
to the negative economic impact and to redeploy assets to maintain levels of turnover
and employment after the sanction in 2014 and from the additional sanctions from 2014
until the 2022 invasion of Ukraine. Additional sanctions since February 2022 have in-
fluenced Russian individuals and firms but it seems again that Russian firms have been
1412 A. Gaur et al.
able to adapt to sanctions through redirection of global supply chains and trade routes.
Emerging market firms have developed a resilience based on their home-country in-
stitutional framework and have developed adaption strategies that may be deployed in
turbulent times. Policymakers considering sanctioning Chinese firms to deter actions
against Taiwan should consider the track record of international sanctions on targeted
individuals and firms with connections to Putin.
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Journal of Management Studies 60:6 September 2023

Do Economic Sanctions Work? Evidence from the

Ajai Gaura , Alexander Settlesb and Juha Väätänenc

Our paper makes important empirical and theoretical contributions. Empirically,

THE CONTEXT: INTERNATIONAL SANCTIONS AND RUSSIA

reduction in national economic growth and lowered living standards. In South

THEORY AND HYPOTHESIS

Hypothesis 1 Targeted sanctions have a negative impact on the economic perfor-

METHODS AND RESULTS

Dependent variable Turnover (ln) Employees (ln)

Time period 2011–16 2011–20 2011–16 2011–20

Illustrative Examples of Firm-Level Adaptation Strategies

Dependent variable Turnover (ln) Employees (ln)

Time period 2011–2016 2011–2020 2011–2016 2011–2020

Dependent variable Turnover (ln) Employees (ln)

Time period 2011–2016 2011–2020 2011–2016 2011–2020

Strategies Tactics Lukoil EN+ GAZ VEB.RF Rostec

Acquiesce Habit International asset

and John Wiley & Sons Ltd.

and John Wiley & Sons Ltd.

DISCUSSION AND CONCLUSION

US and EU political systems to counter-sanctions, and an overall economic slowdown

You might also like

J Management Studies - 2023 - Gaur - Do Economic Sanctions Work Evidence From The Russia Ukraine Conflict

Uploaded by

Document Information

Original Title

Copyright

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J Management Studies - 2023 - Gaur - Do Economic Sanctions Work Evidence From The Russia Ukraine Conflict

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Copyright:

Available Formats

Journal of Management Studies 60:6 September 2023

Do Economic Sanctions Work? Evidence from the

Ajai Gaura , Alexander Settlesb and Juha Väätänenc

Our paper makes important empirical and theoretical contributions. Empirically,

THE CONTEXT: INTERNATIONAL SANCTIONS AND RUSSIA

reduction in national economic growth and lowered living standards. In South

THEORY AND HYPOTHESIS

Hypothesis 1 Targeted sanctions have a negative impact on the economic perfor-

METHODS AND RESULTS

Dependent variable Turnover (ln) Employees (ln)

Time period 2011–­16 2011–­20 2011–­16 2011–­20

Illustrative Examples of Firm-­Level Adaptation Strategies

Dependent variable Turnover (ln) Employees (ln)

Time period 2011–­2016 2011–­2020 2011–­2016 2011–­2020

Dependent variable Turnover (ln) Employees (ln)

Time period 2011–­2016 2011–­2020 2011–­2016 2011–­2020

Strategies Tactics Lukoil EN+ GAZ VEB.RF Rostec

Acquiesce Habit International asset

and John Wiley & Sons Ltd.

and John Wiley & Sons Ltd.

DISCUSSION AND CONCLUSION

US and EU political systems to counter-­sanctions, and an overall economic slowdown

You might also like

Time period 2011–16 2011–20 2011–16 2011–20

Illustrative Examples of Firm-Level Adaptation Strategies

Time period 2011–2016 2011–2020 2011–2016 2011–2020

Time period 2011–2016 2011–2020 2011–2016 2011–2020

US and EU political systems to counter-sanctions, and an overall economic slowdown