Predictable Money, Unpredictable Returns? The Effects of US Federal Contracts on Equity Returns

Sammanfattning

This thesis examines whether and how exposure to U.S. federal government procurement affects the equity returns of publicly traded firms. Drawing on contract obligations data from USASpending.gov matched to firm-level financial data from Compustat and CRSP, we construct a novel panel dataset covering 118 publicly traded firms across four major federal agencies, including the Department of Defense, the Department of Health and Human Services, National Aeronautics and Space Administration, and the Department of Veterans Affairs, over the period 2014 to 2024. Using a two-way fixed effects panel regression framework, we find no significant relationship between procurement exposure and stock returns in the full sample. However, disaggregating by agency reveals meaningful heterogeneity: NASA procurement exposure is associated with a statistically significant return discount, consistent with the interpretation that the market prices the superior cash flow stability of NASA's long-term, cost-plus contracting structure as lower risk. No equivalent effect is found for DoD, HHS, or VA. These findings suggest that treating federal procurement as a homogeneous exposure category conceals important cross-agency differences in how government revenue is priced by the market.