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dc.contributor.authorChong Wang
dc.contributor.authorJoseph San Miguel
dc.identifier.citationPublished--Unlimited Distribution
dc.descriptionFinancial Management / NPS Faculty Research
dc.description.abstractA long-controversial issue, one that divides academics, government officials, elected representatives, and the U.S. defense industry, is whether defense contractors earn abnormal or excessive profits at the expense of taxpayers. Using an innovative industry-year-size matched measure of excessive profit, we demonstrate three findings. First, when compared with their industry peers, defense contractors earn excessive profits. This result is evident when profit is measured by Return on Assets (ROA), Return on Common Equity (ROCE), and Profit Margin Ratio (PMR). The evidence of excessive profit is less consistent if profit is measured by Operating Margin Ratio (OMR). Second, defense contractors excessive profit is more pronounced after 1992, consistent with the conjecture that the post-1992 significant industry consolidation enabled superior profitability due to both the improved bargaining power and increased political influence of the newly combined firms. Finally, defense contractors excessive profitability increases with poorer corporate governance, as measured by the duality of the Chief Executive Officer (CEO) and the Chairman of the Board.
dc.description.sponsorshipAcquisition Research Program
dc.languageEnglish (United States)
dc.publisherAcquisition Research Program
dc.relation.ispartofseriesExcessive profits
dc.subjectDefense Contractors
dc.subjectExcessive Profits
dc.subjectIndustry Consolidation
dc.subjectCorporate Governance
dc.titleThe Excessive Profits of Defense Contractors: Evidence and Determinants
dc.typeTechnical Report
Appears in Collections:Sponsored Acquisition Research & Technical Reports

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