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Cheap Talk? Financial Sanctions and Non-Financial Firms

Besedeš, Tibor ; Goldbach, Stefan ; Nitsch, Volker (2021):
Cheap Talk? Financial Sanctions and Non-Financial Firms. (Publisher's Version)
In: Darmstadt Discussion Papers in Economics, 239, Darmstadt, ISSN 1438-2733,
DOI: 10.26083/tuprints-00017631,
[Report]

Abstract

Sanctions restrict cross-border interactions and therefore, not only put political and economic pressure on the target country, but also adversely affect the sender country. This paper examines the effect of financial sanctions on the country imposing them. We analyze the business responses of German non-financial entities to the imposition of sanctions on 23 countries over the period from 1999 through 2014. Examining highly disaggregated, monthly data from the German balance of payments statistics, we find four main results. First, German financial activities with sanctioned countries are reduced after the imposition of sanctions. Second, firms doing business with sanctioned countries tend to be disproportionately large, often having alternative business opportunities. Third, firms affected by sanctions expand their activities with non-sanctioned countries, some of which display close trade ties to the sanctioned country. Fourth, we find no effect of sanctions on broader measures of firm performance such as employment or total sales. Overall, we conclude that the economic costs of financial sanctions to the sender country are limited.

Item Type: Report
Erschienen: 2021
Creators: Besedeš, Tibor ; Goldbach, Stefan ; Nitsch, Volker
Status: Publisher's Version
Title: Cheap Talk? Financial Sanctions and Non-Financial Firms
Language: English
Abstract:

Sanctions restrict cross-border interactions and therefore, not only put political and economic pressure on the target country, but also adversely affect the sender country. This paper examines the effect of financial sanctions on the country imposing them. We analyze the business responses of German non-financial entities to the imposition of sanctions on 23 countries over the period from 1999 through 2014. Examining highly disaggregated, monthly data from the German balance of payments statistics, we find four main results. First, German financial activities with sanctioned countries are reduced after the imposition of sanctions. Second, firms doing business with sanctioned countries tend to be disproportionately large, often having alternative business opportunities. Third, firms affected by sanctions expand their activities with non-sanctioned countries, some of which display close trade ties to the sanctioned country. Fourth, we find no effect of sanctions on broader measures of firm performance such as employment or total sales. Overall, we conclude that the economic costs of financial sanctions to the sender country are limited.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 239
Place of Publication: Darmstadt
Collation: 41 Seiten
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > International Economics
Date Deposited: 12 Mar 2021 09:08
DOI: 10.26083/tuprints-00017631
Official URL: https://tuprints.ulb.tu-darmstadt.de/17631
URN: urn:nbn:de:tuda-tuprints-176312
Additional Information:

JEL Code: F20; F36; F38; F51

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