IDEAS home Printed from https://ideas.repec.org/p/hal/cesptp/halshs-00115655.html
   My bibliography  Save this paper

What drives the market value of firms in the defense industry?

Author

Listed:
  • Gunther Capelle-Blancard

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Nicolas Couderc

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the relative importance of different types of news in driving significant stock price changes of firms in the defense industry. We implement a systematic event study with a sample of the 58 largest publicly listed companies in the defense industry, over the time period 1995-2005. We first identify, for each firm, the statistically significant abnormal returns over the time period, and then we look for information releases likely to cause such stock price movements. We find that stock price movements in the defense industry are, in many ways, influenced by the same events as in other industries (key role of formal earnings announcements or analysts' recommendations) but this industry also has some specific features, in particular the influence of geopolitical events and the relevance and frequency of bids and contracts on stock prices.

Suggested Citation

  • Gunther Capelle-Blancard & Nicolas Couderc, 2006. "What drives the market value of firms in the defense industry?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00115655, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00115655
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00115655
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-00115655/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Atiase, Rk, 1985. "Predisclosure Information, Firm Capitalization, And Security Price Behavior Around Earnings Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 23(1), pages 21-36.
    2. Pritamani, Mahesh & Singal, Vijay, 2001. "Return predictability following large price changes and information releases," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 631-656, April.
    3. Harrington, Scott E. & Shrider, David G., 2007. "All Events Induce Variance: Analyzing Abnormal Returns When Effects Vary across Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(1), pages 229-256, March.
    4. de Jong, F.C.J.M. & Kemna, A. & Kloek, T., 1992. "A contribution to event study methodology with an application to the Dutch stock market," Other publications TiSEM 7805a40a-1e85-4621-ac05-0, Tilburg University, School of Economics and Management.
    5. Sandrine Lardic & Valérie Mignon, 2002. "Étude d’événements sur données intraquotidiennes françaises : les réactions des actionnaires aux annonces," Revue d'Économie Financière, Programme National Persée, vol. 66(2), pages 335-340.
    6. Binder, John J, 1998. "The Event Study Methodology since 1969," Review of Quantitative Finance and Accounting, Springer, vol. 11(2), pages 111-137, September.
    7. de Jong, Frank & Kemna, Angelien & Kloek, Teun, 1992. "A contribution to event study methodology with an application to the Dutch stock market," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 11-36, February.
    8. Karolyi, G. Andrew & Martell, Rodolfo, 2005. "Terrorism and the Stock Market," Working Paper Series 2005-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    9. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    10. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    11. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    12. David H. Cutler & James M. Poterba & Lawrence H. Summers, 1988. "What Moves Stock Prices?," Working papers 487, Massachusetts Institute of Technology (MIT), Department of Economics.
    13. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June.
    14. Robert Savickas, 2003. "Event‐Induced Volatility and Tests for Abnormal Performance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(2), pages 165-178, June.
    15. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    16. Grant, Eb, 1980. "Market Implications Of Differential Amounts Of Interim Information," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 255-268.
    17. Paul Ryan & Richard J. Taffler, 2004. "Are Economically Significant Stock Returns and Trading Volumes Driven by Firm‐specific News Releases?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 49-82, January.
    18. Paul Ryan & Richard J. Taffler, 2004. "Are Economically Significant Stock Returns and Trading Volumes Driven by Firm-specific News Releases?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1-2), pages 49-82.
    19. Thompson, Rb & Olsen, C & Dietrich, Jr, 1987. "Attributes Of News About Firms - An Analysis Of Firm-Specific News Reported In The Wall Street Journal Index," Journal of Accounting Research, Wiley Blackwell, vol. 25(2), pages 245-274.
    20. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    21. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    22. Brockett, Patrick L. & Chen, Hwei-Mei & Garven, James R., 1999. "A new stochastically flexible event methodology with application to Proposition 103," Insurance: Mathematics and Economics, Elsevier, vol. 25(2), pages 197-217, November.
    23. Asquith, Paul & Bruner, Robert F. & Mullins, David Jr., 1983. "The gains to bidding firms from merger," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 121-139, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gurdgiev, Constantin & Henrichsen, Aaron & Mulhair, Andrew, 2022. "The budgets of wars: Analysis of the U.S. defense stocks in the Post-Cold War era," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 335-346.
    2. Merkl-Davies, Doris M. & Koller, Veronika, 2012. "‘Metaphoring’ people out of this world: A Critical Discourse Analysis of a chairman's statement of a UK defence firm," Accounting forum, Elsevier, vol. 36(3), pages 178-193.
    3. Bouri, Elie & Quinn, Barry & Sheenan, Lisa & Tang, Yayan, 2024. "Investigating extreme linkage topology in the aerospace and defence industry," International Review of Financial Analysis, Elsevier, vol. 93(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Devaney, Michael, 2012. "Financial crisis, REIT short-sell restrictions and event induced volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 219-226.
    2. Al-Ississ Mohamad, 2015. "The Cross-Border Impact of Political Violence," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 21(2), pages 239-272, April.
    3. Onur Enginar & Kazim Baris Atici, 2022. "Optimal forecast error as an unbiased estimator of abnormal return: A proposition," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(1), pages 158-166, January.
    4. Ercan Balaban & Charalambos Th. Constantinou, 2006. "Volatility clustering and event-induced volatility: Evidence from UK mergers and acquisitions," The European Journal of Finance, Taylor & Francis Journals, vol. 12(5), pages 449-453.
    5. Furdui Călin & Șfabu Dorina Teodora, 2023. "The European Banks Under the Shock of the Russian Invasion of 2022: An Event Study Approach," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 68(1), pages 62-77, April.
    6. Aktas, Nihat & de Bodt, Eric & Cousin, Jean-Gabriel, 2007. "Event studies with a contaminated estimation period," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 129-145, March.
    7. Steve Janner & Daniel Schmidt, 2015. "Are economically significant bond returns explained by corporate news? An examination of the German corporate bond market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(3), pages 271-298, August.
    8. Chortareas, Georgios & Cipollini, Andrea & Eissa, Mohamed Abdelaziz, 2012. "Switching to floating exchange rates, devaluations, and stock returns in MENA countries," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 119-127.
    9. Timm O. Sprenger & Philipp G. Sandner & Andranik Tumasjan & Isabell M. Welpe, 2014. "News or Noise? Using Twitter to Identify and Understand Company-specific News Flow," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 791-830, September.
    10. Chia-Lin Chang & Shu-Han Hsu & Michael McAleer, 2018. "An Event Study Analysis of Political Events, Disasters, and Accidents for Chinese Tourists to Taiwan," Sustainability, MDPI, vol. 10(11), pages 1-77, November.
    11. Paul Ryan & Richard J. Taffler, 2004. "Are Economically Significant Stock Returns and Trading Volumes Driven by Firm‐specific News Releases?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 49-82, January.
    12. Omer Ahmed Sayed & Hussein Eledum, 2023. "The short‐run response of Saudi Arabia stock market to the outbreak of COVID‐19 pandemic: An event‐study methodology," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2367-2381, July.
    13. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    14. Oberndorfer, Ulrich & Ulbricht, Dirk, 2007. "Lost in Transmission? Stock Market Impacts of the 2006 European Gas Crisis," ZEW Discussion Papers 07-030, ZEW - Leibniz Centre for European Economic Research.
    15. Pushpanjali Kaul & Sangeeta Arora, 2022. "Reinventing a brand’s identity: effect of name and logo announcements on the stock price of Indian banks," Journal of Brand Management, Palgrave Macmillan, vol. 29(3), pages 258-270, May.
    16. Halkos, George & Managi, Shunsuke & Zisiadou, Argyro, 2017. "Analyzing the determinants of terrorist attacks and their market reactions," Economic Analysis and Policy, Elsevier, vol. 54(C), pages 57-73.
    17. Ranjeeni, Kumari, 2014. "Sectoral and industrial performance during a stock market crisis," Economic Systems, Elsevier, vol. 38(2), pages 178-193.
    18. Wijayana, Singgih & Gray, Sidney J., 2018. "Capital market consequences of cultural influences on earnings: The case of cross-listed firms in the U.S. stock market," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 134-147.
    19. Panayiotis C. Andreou & Christodoulos Louca & Christos S. Savva, 2016. "Short-horizon event study estimation with a STAR model and real contaminated events," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 673-697, October.
    20. Rui Fan & Oleksandr Talavera & Vu Tran, 2020. "Social media bots and stock markets," European Financial Management, European Financial Management Association, vol. 26(3), pages 753-777, June.

    More about this item

    Keywords

    GARCH models; information releases; defense industry; financial markets; Event study; marchés financiers; secteur de la Défense; publication d'informations; modèles GARCH; Etude d'évènements;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00115655. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.