Does Political Instability Affect Business Efficiency of Russian Firms?

This study delves into the impact of political instability on the business efficiency (proxied by growth rate of ROA) of 3, 706 Russian firms for the period 2019-2022. The aim of the study is to reveal the impact of governance quality on the managerial efficiency of Russian companies during recent years with a particular concern of the on-going political instability: the Russia-Ukraine conflict. The results from the binary probit regression analysis allow us to substantiate that the probability of ROA growth and governance quality are inversely related in the recent years. However, when the governance indicators are interacted with the year dummy 2022, its effect becomes positive on the probability of growth of ROA. This implies that due to the ongoing Russia-Ukraine conflict the improved governance quality starts to exert impacts on the business efficiency of Russian firms. The overall impact of governance indicators is stronger for SMEs than for large companies in Russia, indicating that large companies have better capacity to withstand external shocks and instabilities than SMEs. © 2025 Elsevier B.V., All rights reserved.