March 2, 2021 | Journal of Policy Modeling

The impact of financial sanctions: The case of Iran

March 2, 2021 | Journal of Policy Modeling

The impact of financial sanctions: The case of Iran

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.

Saeed Ghasseminejad is a senior Iran and financial economics adviser at the Foundation for Defense of Democracies, where he also contributes to FDD’s Center on Economic and Financial Power. Follow Saeed on Twitter @SGhasseminejadFDD is a nonpartisan think tank focused on foreign policy and national security issues. Mohammad R. Jahan-Parvar is a Principal Economist for the Federal Reserve Board of Governors. 

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Issues:

Iran Iran Politics and Economy Iran Sanctions Sanctions and Illicit Finance