The Fortunes of War and Aircraft Manufacturer Stock Returns: The Case of the Korean War
- 41 Downloads
We examine the profitability of U.S. aircraft manufacturers, their stock returns over the sample period, and their stock reaction to important events during the Korean War. Aircraft stocks responded favorably to events implying a continuation of the war and negatively to events implying a cessation of hostilities. Furthermore, their accounting profits improved substantially relative to pre-war years and to the median of the largest 500 U.S. corporations. This increase may explain why annualized returns for aircraft firms were greater than the overall market during the war. However, these higher returns were not “excessive” based on the Carhart four-factor alpha.
KeywordsKorean war aircraft industry defense contracting wartime stock returns
JELG10 N42 N22
The authors thank the anonymous referees and seminar participants at the Eastern Economic Association annual conference and the Northeast Business and Economics Association annual conference for their helpful comments. Stephen Ciccone gratefully acknowledges support from the Peter T. Paul Financial Policy Center.
- Bos, Ann M., and Randy R. Talbot. 2001. Enough and On Time: The Story of the Detroit Arsenal. Michigan History Magazine, (March 7): 25–47.Google Scholar
- Brandes, Stuart D. 1997. Warhogs: A History of War Profits in America. Lexington: University Press of Kentucky.Google Scholar
- Dwyer, Larry. 1999. North American F-86 Sabre. Aviation History Online Museum, http://www.aviation-history.com/north-american/f86.html.
- Fesler, James W. 1947. Industrial Mobilization for War: History of the War Productions Board and Predecessor Agencies, 1940–1945. Volume 1: Program and Administration. Washington, D.C.: Bureau of Demobilization, Civilian Production Administration.Google Scholar
- Finletter Commission. 1948. Survival in the Air Age. A Report by the President’s Air Policy Commission.Google Scholar
- Fisher, Franklin M., and John J. McGowan. 1983. On the Misuse of Accounting Rates of Return to Infer Monopoly Profits. American Economic Review, 73: 82–97.Google Scholar
- Hermes, Walter G. 1992. Truce Tent and Fighting Front. Washington, D.C.: Center of Military History, United States Army.Google Scholar
- Kofsky, Frank. 1993. Harry Truman and the War Scare of 1948. New York: St. Martin’s Press.Google Scholar
- Lombardi, Michael. 2008. Seventh Heaven: 50 Years Ago Boeing and Pan Am Revolutionized Travel with the 707. Boeing Frontiers, 8–9.Google Scholar
- Nelson, Jeff. 2014. That Special Time: The U.S. Auto Industry During the Korean War. Curbside Classic, www.curbsideclassic.com/automotive-histories/cc-history-“that-special-time”-the-u-s-auto-industry-during-the-korean-war/.
- Stigler, George J., and Claire Friedland. 1971. Profits of Defense Contractors. American Economic Review, 61: 692–694.Google Scholar
- United States Gazette. 1 October 1814.Google Scholar
- United States Senate. 1946. Economic Concentration and World War II. Report of the Smaller War Plants Corporation to Special Committee to Study Problems of American Small Business. 79th Congress, 2nd Session.Google Scholar
- Wang, Chong, and Joseph San Miguel. 2012. The Excessive Profits of Defense Contractors: Evidence and Determinants. Journal of Public Procurement, 12: 386–406.Google Scholar
- Weidenbaum, Murray L. 1968. Arms and the American Economy: A Domestic Convergence Hypothesis. American Economic Review, 58: 428–437.Google Scholar
- Willard, Kristen L., Timothy W. Guinnane and Harvey S. Rosen. 1996. Turning Points in the Civil War: Views from the Greenback Market. American Economic Review, 86: 1001–1018.Google Scholar