The impact of the Russian invasion of Ukraine on investment and financing of local SMEs

This article examines how the 2022 Russian invasion of Ukraine affected the investment and financing policies of small and medium-sized (SMEs) enterprises in Ukraine and neighbouring Russian border regions. Using a matched difference-in-differences framework with SMEs from Belgium and the United Kingdom as comparison firms, we document substantial within-firm changes during the war period. Ukrainian SMEs exhibit lower investment and higher cash holdings, a pattern consistent with precautionary liquidity motives. Short-term debt declined overall during the war period, while long-term debt increased modestly. This pattern is suggestive of a shift in debt maturity among firms that retained access to external finance. Trade credit relative to sales increased, whereas trade credit relative to assets declined, a pattern consistent with tighter supplier exposure despite ongoing obligations. Russian border-region SMEs show higher investment relative to the comparison group and experienced a contraction in trade credit relative to assets, pointing to heterogeneous adjustment patterns across institutional contexts. Older and medium-sized firms show stronger investment adjustment and maturity shifts. Younger and smaller firms rely more on short-term liquidity management and experience sharper contractions in trade credit. JEL classification: G32; D74.