Why Do Companies Overcomply With Sanctions and How Does This Relate to Their Economic Performance? The Case of the Russian-Ukrainian War

In this article, we analyse which internal characteristics of firms lead to sanctions overcompliance and how this affects economic performance. The results are based on a 2003 survey of 610 SMEs (small and medium enterprises) affected by trade restrictions. The Chi-Square Automatic Interaction Detection (CHAID) technique was used to identify the factors driving firms’ overcompliance and the adjustment strategies that minimised the costs of withdrawal from sanction-targeted areas. The findings show that the most important drivers of overcompliance are ethical in nature, including employee pressure and firms’ internal moral and sustainability codes of conduct. Overcompliance was associated with poorer economic performance compared to pre-war levels, though its effects were mitigated by a combination of cost cutting and proactive adjustment strategies.