Investment under fire: Firm responses to war in Ukraine

How do firms adapt their decision-making about strategic investments during a war? We examine this question in the context of Russia's full-scale invasion of Ukraine, combining data on almost 500,000 Ukrainian firms from 2017 to 2023 with detailed conflict data. We argue that war reshapes firm investment through three related mechanisms: exposure to violence, changes in the strategic value of firm resources, and sectoral alignment with wartime demand. Our results show that firms exposed to war strongly reduce their investment, and that this negative investment response is amplified by conflict intensity. Moreover, war reconfigures the strategic value of firm resources: financial resilience preserves firm investments, whereas the investment advantages associated with firm size and leverage weaken as larger firms have more resources at risk and debt creates financial rigidity. Firms in war-related industries increase investment during war, indicating that productive capabilities aligned with wartime demand may create strategic opportunities even under extreme uncertainty. These findings contribute to research on violent conflict and firm strategy by showing that war is not simply a uniform negative shock, but also creates a strategic context in which firms adapt depending on how risks, resources, and opportunities are reconfigured.