From Russia with love: International risk-sharing, sanctions, and firm investments

We propose a novel explanation for why sanctions on Russian firms might not work as intended: these firms’ ability to diversify sanction risks via partner countries friendly with Russia. Using indirect links with partner firms as a plausibly exogenous proxy for this risk-sharing channel, we show that exposed Russian firms were able to leverage these links to alleviate the negative impacts of sanctions in 2014. • Maintaining links with firms in friendly countries helped Russian firms diversify sanction risks. • Russian firms leveraged these links to alleviate the negative impacts of sanctions in 2014. • These firms did so through higher investments and an increase in tangible assets. • Results highlight the importance of accounting for the risk-sharing channel of sanctions.