Stay or leave? How corporate responses to economic sanctions shape consumer reactions

Abstract

Today, firms face mounting challenges due to increasing international conflicts, wars, and economic sanctions. Our research, based on nine studies employing both experimental methods and secondary data, examines how firms’ response strategies in sanctioned countries affect consumer reactions (attitude toward the company and word of mouth). Drawing on signaling theory and the literature on economic sanctions, this research reveals that consumers respond more favorably to firms that adopt a full-suspension strategy as opposed to a scale-back strategy, which in turn elicits more positive reactions than a continuation strategy. Our findings also show that the perceived morality of the firm mediates this effect. Furthermore, the effect can be generalized from the Russo-Ukrainian War to other causes of economic sanctions, such as human rights issues and terrorism. Given the logic of perceived morality, factors such as response time (early vs. late), corporate donation (yes vs. no), product type (essential vs. nonessential), and announcement source (CEO vs. company) serve as boundary conditions for the effect. Overall, our research not only makes significant contributions to the literature on economic sanctions, crisis management, and signaling theory, but also provides clear guidance for global firms on employing appropriate response strategies during economic sanctions.