Investor Reactions to Firms’ Announcements of Operational Decisions in Markets Involved in Geopolitical Conflicts

Abstract

Firms are increasingly facing decisions about operations in markets affected by geopolitical conflicts that attract global attention, but research illuminating the consequences of these decisions remains scarce. In this article, the authors develop a theoretical framework that integrates rational expectations theory with the person-situation framework to explain how investors react to firms’ operational decisions in such markets. Using Russia's war in Ukraine as the empirical context, the authors analyze 289 announcements by 237 firms publicly traded in the United States and United Kingdom during the first month of the conflict. They find that firms announcing a suspension of their operations experience more negative short-term market reactions than firms announcing continued operations. However, these negative reactions are attenuated when suspensions are more anticipated due to prior competitor suspensions, higher public interest in the conflict, larger firm operational footprint in the affected market, and greater preconflict media attention focused on the focal firms. This framework provides important insights for managers faced with both market pressures and stakeholder expectations during geopolitical crises, as well as a theoretical basis for scholars to further examine the consequences of turmoil in firms’ international markets.