Analysis of ExFOB Program

Abstract

The purpose of this paper is to examine and analyze whether or not there was a statistically significant reaction in financial markets to the announcements of US defense contractor consolidations (mergers and acquisitions) from January 1990 to December 2006. This analysis is conducted through the use of two series-of-event studies (employing first the arithmetic and then the logarithmic returns against the S&P 500 index) involving the top five defense contractors: Boeing, Lockheed Martin, General Dynamics, Raytheon and Northrop Grumman. Many studies have been conducted using the event-study methodology, and the results have shown in some cases that stock prices do respond to new information. The assumption has been maintained that the market responds rationally to such announcements. In contrast, the announcements of the acquisition of publicly traded firms by other publicly traded firms have not always had a consistently significant beneficial effect on the shareholder wealth of the acquiring firms (Schipper & Thompson, 1983). Results of this case study further support the latter assertion and add to the body of research involving event studies.