Nearly 1,000 companies chose to withdraw from Russia after the Ukraine invasion and are not just benefiting from a “good reputation.” According to a report by a research team from the Yale School of Managementcompanies that left the country are being rewarded by the financial markets, while those who remain are being punished. The team, led by Jeffrey Sonnenfeld, monitors since February almost 1,300 companies operating in Russia with a listcontinually updatedof companies that are staying in or leaving the nation.
We found that equity markets are rewarding companies that leave Russia, while punishing those that remain underperforming stocks – which applies to all regions, sectors and company sizes.
the researcha measures the total shareholder return of companies that left Russia relative to those that chose to stay. The list is divided into five categories, from A to F, the latter being used for companies that are defying public requests about to leave. The other categories are A, which describes companies that have ceased operations in Russia; B, used for companies that are temporarily restricting activitieswhile keeping their return options open; C, describing companies that have reduced some activities while others continue; and D, for companies that are postponing new investments in Russia but still most of the business in the country. Companies were organized based on these five categories and measures with the market capitalization weighted method it’s the equally weighted index method. The results indicate that companies in categories A and B fared better than those in categories D and F, with “the standard of underperforming F-rated companies, in line with our informal and subjective observations,” the report alleges. When the list was first released by CNBC on March 7, many of the companies that had remained in Russia suffered stock drops between 15% and 30%, even with market indices falling by only 2% to 3%. On the other hand, the report also suggests that asset write-offs and loss of income from Russia’s exit were exceeded by market gains. According to the report, at least six multinationals had a positive performance of their stocks after the announcement of their departures. Some examples are Heineken (HEIA, -1.08% / HEINY, -1.31%), shell (SHEL, +0.99%), Exxon (XOM, 1.14%), and AB InBev – producer of Budweiser and Stella Artois (ABI, -0.29%).
Our analysis of global capital flows demonstrates the importance investors attach to the decision to withdraw from Russia – and that investors believe that the global reputational risk incurred by staying in the country is far above the costs of exit.
Other companies like Nike, Starbucks, Embraer and Honda also partially or completely suspended their activities in the country. While brands like Hard Rock Cafe, Lacoste, Leroy Merlin and Riot Games are still operating in Russia. The number of companies leaving Russia rose to nearly 1,000 at the end of May, and includes McDonald’s (MCD, +0.35%), which sold its entire business in the country to a local investor. According to Sonnenfeld, business leaders are rewarded for speaking up because “are the most ascending set of institutional leaders in the world since military leaders have no voice.”