Buck for the Bang? Abnormal Returns in Response to Arms Donation Announcements During the Russo-Ukrainian War

Sammanfattning: This paper examines defense industry stock market reactions to governmental announcements to donate weapons to Ukraine in response to the Russian invasion 2022. We use daily stock return and donation announcement data and employ event study methodology to establish abnormal returns among a select number of defense industry firms. Our results indicate that announcements of arms donations generally do not explain variation in abnormal returns and that the explanatory value is low and insignificant. We also examine if the unique dynamics of the defense industry lead to a proximity relationship, i.e., that stock market reactions are stronger for announcements from the countries that are home to the select companies. While such a relationship is insignificant, our estimates indicate that markets react more strongly to such announcements. Our study relates to previous research on market reactions to difficult-to-interpret information, such as government announcements, and market reactions to war-related information. Our results conclude that markets do not react significantly to arms donation announcements in general. However, such information would suggest that future firm earnings would increase and that markets should respond in kind.