The Impact of Financial Sanctions: The Case of Iran 2011-2016

Abstract

This study provides a detailed analysis of the impact of financial sanctions on publicly traded companies. We consider the effect of imposing and lifting sanctions on the target country's traded equities and examine the differences in the reaction of politically connected firms and those without such connections. The paper focuses on Iran due to (1) its sizable financial markets, (2) imposition of sanctions of varying severity and duration on private and state-owned companies, (3) the significant presence of politically connected firms in the stock market, and (4) the unique event of the 2015 nuclear deal, resulting in fairly rapid lifting of a sizable portion of imposed sanctions. We find that sanctions affect politically connected firms more than ordinary firms, have lasting negative effects on profitability ratios, and that politically connected firms stock prices bounce back more slowly after removal of sanctions. Firms targeted by financial sanctions decrease their leverage and increase their cash holding to manage their perceived increase in risk profile.

Reconsidering contemporary classifications of sanctions in the light of the Russia sanctions regime

“…There are cases of highly effective financial sanctions, e.g. the US sanctions package implemented to discourage Iran from pursuing its nuclear program (Ghasseminejad, 2020). Tightening of financial sanctions may include limiting the target's central bank's access to its foreign currency reserves, restrictions imposed on gold sales, and disconnecting some of the banks from the SWIFT global payments network.…”