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War! Good news for defense firms? Analysis of the impact of Russia–Ukraine conflict

Author

Listed:
  • António Miguel Martins
  • Pedro Correia
  • Ricardo Gouveia

Abstract

Purpose - This paper examines the short-term market impact of the beginning of the military conflict between Russia and Ukraine (February 24, 2022) on the world’s largest defense firms. Design/methodology/approach - The authors examine the world’s 100 largest listed defense firms at and around the beginning of the military conflict between Russia and Ukraine using an event-study methodology. Findings - We observe a positive and statistically significant stock price reaction at and around the beginning of the military conflict. These results are consistent with the asset-pricing perspective/expected cash flow hypothesis. Consistent with the captured regulator theory, we find superior market returns for the two portfolios with a greater weight of defense sales. Superior market returns are also found for defense firms with higher R&D and capital expenditure intensity. Finally, these reactions are reinforced or mitigated by other firm-specific characteristics such as size, profitability and institutional ownership. Originality/value - The effect of the war on stock markets has been relatively little examined in the financial theory. This study intends to fill this gap in the literature.

Suggested Citation

  • António Miguel Martins & Pedro Correia & Ricardo Gouveia, 2024. "War! Good news for defense firms? Analysis of the impact of Russia–Ukraine conflict," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 52(2), pages 303-321, May.
    • Handle: RePEc:eme:jespps:jes-11-2023-0667
    DOI: 10.1108/JES-11-2023-0667
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