Exploring the effect of the Russian–Ukrainian conflict on MENA firms: Does the monetary policy play a role?

Abstract This paper explores the effect of the Russian–Ukrainian conflict on the firms operating in the Middle East and North African (MENA) countries, focusing on how different sectors of the economy have responded. The empirical methodology utilizes firm‐level data from MENA countries, employing fixed effect and instrumental variable estimations to control for the potential endogeneity of casualties in the war and firm dynamics. The results of this study reveal that (1) an increase of 1% in the hostility of the Russian–Ukrainian war corresponds to a 0.13% decrease in the market cap of MENA firms. (2) This effect is more pronounced among highly indebted firms, conducting business solely within the domestic market, and operating on a small scale. (3) The monetary policy is vital in mitigating the effect of the conflict on firms. This study has two main contributions. First, it empirically assesses how firms operating in the MENA region respond to geopolitical events, highlighting differences in responses between firms and sectors. Second, this paper serves as guidelines for governments to face the challenges raised by wars. In particular, the paper shows the relevance of sector‐specific policy responses based on the extent to which each sector is affected by geopolitical events.