The price of backlash: Performance of Israeli firms Post-Gaza War

Abstract

This study examines the financial price of reputational backlash against Israeli firms following the Gaza War on October 7, 2023. We develop a sentiment–trade interaction framework that integrates Google Trends hostility queries, GDELT media tone, and a composite sentiment index with Israel's bilateral trade exposure. Using a panel of 516 Israeli listed firms, we estimate a triple-interaction model that separates direct war effects from reputational backlash transmitted through bilateral trade linkages. Results show that a one-standard-deviation rise in backlash erased one to two months of typical equity gains, with effects most pronounced in Muslim-majority countries. Sectoral regressions reveal severe penalties in industrials, financials, basic materials, energy, and consumer-facing sectors, while defense and technology were comparatively insulated. Firm-level heterogeneity highlights stronger losses among firms with high foreign institutional ownership, insider concentration, ESG risk, and leverage. A step-dummy approach confirms persistence, underscoring how moral backlash imposes market penalties absent formal sanctions.