Staying or Leaving? How Businesses Take Action Towards Economic Sanctions and Evidence from the Russia–Ukraine War

Abstract Since the beginning of the Russia–Ukraine war in 2022, there is no universal sanction regimes forcing foreign firms to withdraw from Russia, and the business environment in Russia is highly uncertain given the escalation of the war. Nevertheless, some foreign firms still chose to completely exit the market despite the cost, while others are still digging in under the risk of being punished. This phenomenon raises a central question for my paper: Under which conditions are firms more likely to retain business presence in a state targeted by economic sanctions? I argue that firms that are more economically vulnerable in a sanctioned market are thereby more likely to not stop their business activities. Specifically, my theory suggests that the more vulnerable firms are either in the extractive sectors of the sanctioned state or hold substantial assets therein, making them less prone to business suspension following sanctions. Using propensity score matching and the logistic model on a cross-sectional dataset monitoring the extent of withdrawal from Russia of more than 1,300 multinational firms, and combining these results with evidence from qualitative case study, I show that the empirical findings support my theory.