Financial Performance in the Defence Industry : A Quantitative Study of Defence Companies Before and After the Russo-Ukrainian war

Sammanfattning

The ongoing Russo-Ukrainian war has reshaped geopolitical relations and the view on the defence industry, leading to increased defence spending by governments and a rising interest in defence companies from investors. As the military spending and public attention has seen a change, the interest to analyse if these factors have affected the financial performance in defence companies have increased. This thesis investigates the effect of the Russo-Ukrainian on the financial performance on the publicly listed defence companies. The thesis adopts a positivist, deductive and quantitative research approach collecting secondary data from publicly listed defence companies included in the Stockholm International Peace Research Institute’s (SIPRI) ranking of the 100 biggest arms-producing companies. The study compares the time period pre-war (2019 - 2021) and post-war (2022-2024) by using paired t-test. The tests have been conducted on both financial- and managerial performance variables including Return on Equity (ROE), Return on Assets (ROA), abnormal return, beta, R&D intensity and turnover by volume. Additionally, the findings have been analysed by applying financial theories such as Capital Asset Pricing Model (CAPM), Risk–return Tradeoff and systematic risk, as well as several managerial theories. The findings show that the war has not resulted in statistically significant changes in any of the variables tested for the sample. The results show smaller variations in the variables but not to the extent that the war has affected the financial performance substantially. The thesis suggest that the defence industry features different characteristics than other commercial markets, where factors as long-term contracts and diversified business activities may contribute to defence companies' stable financial performance during the war. The study provides insight about geopolitical risk and financial performance in relation to the defence industry, as well as contributing practically to investors when evaluating defence investments during uncertain geopolitical times.