The Impact of Sanctions on the Capitalization of Russian Companies: The Sectoral Aspect

Abstract

The research purpose is to evaluate influence of sanctions on the Russian economy taking into consideration the sectoral aspect (oil and gas, telecommunications and consumer sector). The research methodology comprises econometric modeling (elastic net and GARCH modeling) and text analysis. In the paper we developed author’s sanction indices based on the text analysis. We used the EcSentiThemeLex dictionary to assess the news’ positivity and negativity. The empiric research base consists of news publications of the lenta.ru portal for the period from 01.01.2014 to 31.03.2023 represented by the thematic sections “economy” and “science and technology”. The research results are as follows. On the basis of GARCH modeling we revealed that sanctions have a negative impact on capitalization of the largest companies in
oil and gas, the consumer sector and telecommunications. The news tonality influences companies’ capitalization. We have developed sanctions indices (a minimal index, an expanded index, a maximally expanded index) which allow to assess the extent of sanctions pressure. On the basis of elastic net method we made the conclusion of priority of sentiment variables over the control ones, i.e. information on sanctions and its tonality influences the stock market more than the oil prices, rouble exchange rate and interbank rate in the short term. Sanctions influence is not industry specific.

However, the study does entail certain limitations: 1. reliance on publications from a single source; 2. the use of a single dictionary for evaluating news sentiment; 3. the sanctions index does not allow the incorporation of new terms when fresh sanctions are imposed. We intend to address these issues in future research.