Peers and Competitors: How Business Managers Evaluate Withdrawals from Russia

• In Event: Political Risk and Foreign Direct Investment

Abstract

States have long used economic sanctions in response to violations of international law as a strategy to restore order. Increasingly, we also observe firms that reject doing business with violators. In response to the war in Ukraine, hundreds of multinational corporations (MNCs) voluntarily withdrew from Russia, even when policymakers were still debating the extent of sanctions. Why did private firms halt their business? We argue that peer pressure and competition generate a strategic interaction in the response of firms to international crises. We test our hypotheses with a survey experiment on Japanese firm managers conducted within the first few months of the Russian invasion of Ukraine. First, we find that news about withdrawal by other firms creates peer pressure and increases support for firm withdrawal. Withdrawal by firms from a diverse range of countries has a larger impact. Second, we find that news about some firms continuing business with the sanction target generates competition concerns and lowers support for firm withdrawal. Our research provides insight into why business actors take political stances during international conflicts.

Authors

• Christina Davis, Harvard University

• Jialu Li, Harvard University

• Sayumi Miyano, Osaka University