Defense Dollars & The Levers of Power : The Counterintuitive Nature of The Military-Industrial Complex Equity Returns at the Presidential Budget Request

Sammanfattning

The relationship between corporate lobbying and equity-market outcomes has been studied extensively in the cross-sectional and long-horizon literature, but its short-window incidence at the concentrated budget events through which United States defence allocations are decided has received limited attention. This thesis examines the cross-section of cumulative abnormal returns for thirty-three publicly listed U.S. defence contractors around the twenty annual Presidential Budget Request announcements between fiscal years 2007 and 2026, a setting characterised by a small number of identifiable firms, recurring concentrated information events and a transparent disclosure regime for firm-level political activity. The analysis employs a two-stage event-study design with two-way fixed effects and Driscoll-Kraay panel-HAC inference, testing the association between firm-level lobbying intensity and announcement-window cumulative abnormal returns, together with the conditional structure of that association on the budget surprise, the prevailing level of geopolitical risk and the partisan identity of the sitting administration. The headline finding, robust across three event-window lengths and to a Fama-French three-factor reconstruction, is that more lobbying-intensive contractors experience systematically lower event-window cumulative abnormal returns than their less politically active peers, and that the effect concentrates sharply under Democratic administrations. The conditional pattern of the result is inconsistent with both the pure information and pure insurance accounts of corporate lobbying but is reconcilable with a framework in which the rents that political activity secures are partly anticipated by markets and incorporated into pre-event price levels. The findings contribute to the empirical literature on corporate political activity by documenting a partisan-asymmetric short-window relationship between lobbying intensity and event-window returns at recurring procurement- decision events, with normative implications for the disclosure regime that the design itself cannot adjudicate.