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

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.

Citation

Martins, A.M., Correia, P. and Gouveia, R. (2024), "War! Good news for defense firms? Analysis of the impact of Russia–Ukraine conflict", Journal of Economic Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JES-11-2023-0667