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A recent study carried out by researchers at Aalto University, the University of Vaasa and the Bank of Finland shows that 11% of European companies were harmed by the Russia sanctions in force between 2014 and 2017. Companies were affected differently in different countries.

‘Our research results show that sanctions against Russia have disproportionate effects on European companies. Russian companies were definitely most affected, but the sanctions also strongly affected companies in Austria, the island of Jersey, Cyprus, Finland, Estonia and Germany. The first three countries are parking spaces for Russian money, and the rest have strong commercial ties with Russia,’ explains Jukka Sihvonen, Assistant Professor of Accounting.

Economic sanctions are increasingly being used as an instrument of international politics. There is little research data, however, on their impacts on companies, even though such data would help with the targeting of sanctions that affect different countries and sectors in different ways and with compensating for their counter-effects.

Annual report data and AI-powered analysis

Researchers analysed the impact of Russian sanctions on the activities of more than 3000 European and Russian companies. The data covers companies in different sectors from 35 different countries, and the study is, as far as is known, the first one in which the impacts of Russian sanctions have been investigated using such a comprehensive set of company-level data.

The research data comprised the public annual reports of companies with a balance sheet of at least EUR 1 million for the period 2014–2017, and the data was analysed using AI-based text mining. The starting premise was that if the sanctions had had a significant impact on a company's business activities, they would be mentioned in the annual report.

‘We let the companies themselves present their views on the economic sanctions,’ says Sihvonen.

The references to the economic sanctions were clearly negative across the whole of Europe, and they were particularly negative in the annual reports of Cypriot, Finnish, French and Russian companies. However, only Russian, Cypriot and Jersey-based companies clearly mentioned the negative effects of sanctions on the market. In other countries, the references to the sanctions were more vague, and their impact on the companies' business was mostly characterised by increased business risks.

The differences between countries are partly explained by the volume of foreign direct investment and the level of export and import trade with Russia.

‘Our results show that the most negative attitude towards sanctions was in countries with a high level of foreign direct investment in or from Russia or with high levels of export or import trade with Russia. This helps to understand why politicians in certain countries may oppose economic sanctions, even though unanimity has been reached at the EU level,’ Jukka Sihvonen says.

More information

The study has been published as a discussion paper by the Bank of Finland Institute for Emerging Economies: