The Impact of the War in Ukraine on Energy Prices: Consequences for Firms’ Financial Performance

We analyze the impact of the shock to energy prices induced by the war in Ukraine on the financial performance of the major European firms listed in the Eurostoxx 600 index. We find that equity returns (CDS spreads) decreased (increased) more substantially for firms characterized by high energy intensity and carbon emission intensity. We then present a method, based on a VAR model, to produce forecasts of firms’ CDS spreads conditional on a 1 or 3-month stress period of high electricity prices and we document a non-negligible increase in the number of firms with a CDS-implied non-investment rating.