It Pays For Companies To Leave Russia
21 Pages Posted: 25 May 2022 Last revised: 31 May 2022
Date Written: May 18, 2022
In this working paper, we seek to explore the response within financial markets, across asset classes, to the decisions companies are making to either exit or remain in Russia, building on our earlier analysis in The Washington Post.
Using our proprietary dataset tracking 1,200 companies, we find that equity markets are actually rewarding companies for leaving Russia while punishing those that remain behind, with divergent stock performance generally corresponding with the degree of Russian exit - which holds true across regions, sectors, and company sizes. Despite disproportionate focus on asset write-downs and lost revenue from Russia, we demonstrate that the shareholder wealth created through equity gains have already far surpassed the cost of one-time impairments for companies that have written down the value of their Russian assets. Furthermore, we find the pattern of financial markets rewarding companies for exiting Russia is not confined to only public equity markets through our analysis of credit and derivative markets, in particular longer maturity corporate debt, credit spreads, and related credit default swap pricing, showing that the investor response has been incredibly broad-based across financial markets.
Our sweeping analysis of global capital flows demonstrates the importance investors attribute to the decision to withdraw from Russia – and that investors believe the global reputational risk incurred by remaining in Russia at a time when nearly 1,000 major global corporations have exited far outweigh the costs of leaving. Clearly, doing well has not been antithetical to doing good – at least when it comes to withdrawing from Russia.
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