Firm-level Response to Sanctions of Small and Medium-sized Enterprises

The impact of sanctions imposed by the United States of America and its allies on Russian companies is a topic of a major concern. This paper examines how SMEs were able to adapt to the new business environment, in particular, how the use of crisis strategies affected companies' performance during the period of economic constraints. The study aims to identify the effectiveness of crisis protective adaptation mechanisms for SMEs during the sanctions period through the prism of a combination of the Resource-Based View and Behaviour theory of the firm. Using ordered logit regression analysis, we examined the impact of each strategy on a firm performance. We used one dependent factorial variable that reflected the percentage change in companies' revenue, several independent variables that could have affected firms’ performance and included control variables for validity and to account for companies’ characteristics. Data was collected among 129 SMEs from several federal districts to account for potential differences between parts of the Russian Federation. The results show that the risky decision of increasing in R&D expenditures and number of personnel allows companies to show higher growth rates compared to those entrepreneurs who did not invest in HR and R&D. In addition, it was investigated and found that companies that had export links with the EU countries and the USA or worked in the service sector had a more difficult time adapting to sanctions and the response strategy to sanctions was less effective. Keywords: sanctions, crisis, SMEs, adaptation, firm performance, ordered logistic regression