The impacts of the Gulf War on the US defense industry

Abstract

In this study, the military intervention of the U.S to the Gulf Crises is taken as a major event and the impact of this event on the U.S defense stocks is examined by using event study methodology. The sample includes thirty-nine defense firms selected from the U.S Department of Defense top contractors list. The analysis of the abnormal returns on these defense stocks shows that the U.S. military intervention to the Gulf crises affects these stocks significantly and positively both in the short-term and in the long-term. The univariate analysis indicates that stock returns of defense firms are affected differently from this war depending on their defense dependency and market value. There exists a positive relationship between defense dependency and abnormal returns of the defense firms, controlling for the size of the firm.