The valuation effects of military contract awards surrounding 11th September

This article examines the stock market's response to military contract award announcements for the 10-year period surrounding 11 September 2001. The abnormal returns of successful grantees are examined over the short run (days −1 to +1) and long run (days −1 to +60) to determine whether these contracts were apparently overfunded. Consistent with previous studies, we find positive abnormal returns on the announcement day for both pre and post 11 September 2001 contracts. Using cross-sectional regression analysis, we do not find a statistically significant difference between the pre and post 11 September 2001 contracts in the short run. Surprisingly though, military contracts granted after 11 September 2001 were apparently underfunded when considering abnormal returns over the long run. The results are robust to the inclusion of industry effects, the use of different regression specifications and the application of alternative estimation and testing intervals.