After Russia’s invasion of Ukraine, almost 1000 companies announced they were pulling out of Russia, either out of moral indignation, or to avoid what they assumed would be an unfavorable economic sanctions environment, or business environment. Now a new Yale study finds those companies are being rewarded by the market as their stock prices rise, while companies which decided to stay in Russia are being harmed.

Yale professor Jeffry Sonnenfeld and his research team at the Yale School of Management performed the study. They monitored almost 1300 companies which did business in Russia, and organized them by whether they decided to pull out of the Russian Federation, or stay behind and continue to operate following Russia’s Feb 24th entry into Ukraine.

The Yale report says, “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.” 

The study goes on to maintain that the focus on lost revenues, and asset write-downs has been misplaced. “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,” the report asserts.

Commenting on the findings, Jeffrey A. Sonnenfeld, Yale School of Management says, ‘Clearly, doing well has not been antithetical to doing good — at least when it comes to withdrawing from Russia.’

The list assembled by the research team graded companies from A to F, with A-rated companies being those that entirely extricated themselves from Russia, B-rated companies being those that are temporarily curtailing activities, C-rated companies being those that are merely scaling back operations, D-rated companies being those that are merely holding off on any new investments in Russia, and F-graded companies being those that chose to dig in and continue to operate there as if nothing were different. There are now 29 US companies which were graded “F.”

The researchers began their analysis on Feb 23rd, the night of which Russia began its invasion, and used two end dates. The first end date was April 8th, a cutoff just before earnings season began, so as to isolate the results from the many factors that could present as earning reports introduced various unpredictable stimuli into the markets. The second date was April 19th, a full eight weeks from the start of the invasion. As a third check on results, they also examined the period until March 14th, which was the period in which there was a steep selloff of stocks following the Russian invasion.

Companies were then analyzed using a market capitalization method and an equal weighted method. The findings showed that companies which were graded closer to A fared far better than companies graded D or F.

The researchers wrote, “The pattern of F companies underperforming generally aligns with our anecdotal observations from updating the list in real-time.”

From the time the list of companies was made public, being aired on CNBC, many of the lower ranked companies suffered stock declines of 15% to 30%, despite key market indices being down just 2% to 3%.

Additionally, the researchers found that asset write-downs and lost revenue from pulling out of Russia were more than made up for by market-cap gains, including even in the largest cases.

Six multi-nationals that endured significant write-downs Heineken HEIA, +0.50% HEINY, -0.42%, Shell SHEL, -0.65%, Exxon XOM, +1.45%, Carlsberg CARL.B, +0.28%, AB InBev ABI, +1.41% and Société Générale GLE, +0.06%, saw more wealth created than was destroyed, as investors poured into their stocks. Altogether these companies endured $14 billion in asset write-downs, but have generated nearly $39 billion in equity gains since.

The report notes, “Perhaps even more surprisingly, each of these companies had positive stock performance after the announcements of their exits from Russia and the values of their asset write-downs — after their stocks initially tanked in the period leading up to their announcement in most cases, as shown by the negative ‘war returns.’ ”

In addition the study found these companies enjoyed additional benefits going beyond public equity gains, into the credit markets, including longer-dated corporate bond prices, credit spreads and related derivatives.

“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.” the report notes.

The Yale list has motivated companies hesitant to leave Russia. It began with about 12 companies which announced they were immediately pulling out of Russia right after the initial invasion. The number rapidly jumped to 70 in a single March weekend. Since then it has risen at a steady rate to over 1,000 in late May. McDonalds sold its entire Russian investment to a single local investor.

Sonnenfeld said,  “The McDonald’s move was both symbolic and substantive. It was there since 1990 as almost a first anchor tenant, and a real flagship because of the global branding value.”

He went on to note, McDonald’s departure “sent shock waves over the bow and surprised the big beverages companies, because McDonald’s is a leader.”

Sonnenfeld makes the case that the government sanctions are designed to damage the Russian economy, to try and make Russian citizens aware that their government’s military actions are outraging the global political structure, and to spur them to apply political pressure to their leaders. Such measures require that companies voluntarily sacrifice their potential profit and business interests to add their support to governments and international bodies.

Sonnenfeld makes the case that companies also need to adapt their behavior to please younger customers who may be more socially conscious, and who may boycott companies which do not support governmental objectives.

He notes, “Business leaders are rewarded for speaking out. They’re the most ascendant set of institutional leaders in the world. Military leaders don’t have a voice.”