Precautionary Deleveraging: An Empirical Study of European Corporate Responses following the 2022 Full-Scale Invasion of Ukraine

Sammanfattning

This paper investigates how European listed firms reacted to Russia's 2022 full-scale invasion of Ukraine. Using a novel two-stage methodology combining a Dimson-corrected exposure metric with a continuous PPML Difference-in-Differences regression, I analyse 1,178 non-financial EU-27 firms. Results show that higher-exposure firms exhibit structural retrenchments in investment (-7.3% per SD), a transitory cash drawdown (-3.3% per SD), and delayed short-term debt reduction (-4.3% per SD). This pattern, precautionary deleveraging, extends the Keynesian precautionary cash-hoarding motive, explaining how firms deploy cash and restructure balance sheets once geopolitical risk is realised, not merely anticipated ex ante.