Investor reactions towards morally driven market exits: Researching the impact of an exit radicality on stock returns in the context of the Russo-Ukrainian War

Abstract

This research investigates stock returns of enterprises that announced their intent to exit the Russian market amid the invasion of Ukraine in February 2022. Distinguishing between radicalities of withdrawals, my study seeks to determine if a typically negative relationship between stock returns and market exits remains valid when an exit is publicly announced as ethics-induced, rather than profit-driven. I predict that cumulative abnormal returns around the day of an announcement will be higher for enterprises intending to withdraw fully, as they send stronger signal of their socially responsible stance. I establish that announcing a complete exit from Russia, in fact, does lead to higher abnormal returns, although market reaction regarding an exit radicality is contingent upon firm-specific characteristics and general economic and political outlooks. Additionally, I find that investors tend to react more actively to the partial withdrawal news, which can signify their concern regarding future growth prospects and profitability when an enterprise maintain its partial presence in Russia. Overall, my paper contributed towards understanding the connection between geopolitical aggression, morally driven market exits and subsequent investor reactions, and provided evidence for reverse correlations. However, given limitations associated with the sample size, I urge to interpret my findings with caution, while also strongly encourage scholars to further explore the topic and broaden the concepts presented in the paper.