The financial performance of aircraft manufacturers during world war II: the vicissitudes of war

Controversy has long surrounded the role and profitability of US defense contractors. From a financial perspective the question becomes whether defense contractors earn greater profits and investor returns than other companies during military conflicts. We explore this question by examining the accounting profitability and investor returns of US aircraft manufacturers before, during, and after World War II and compare them to a sample of non-defense firms. We also examine the reactions of aircraft stock prices to important political and military events of the time. We find that (1) aircraft stocks exhibited positive abnormal returns around events associated with defense buildups and outbreaks of hostile action and negative returns around events signaling an end to hostilities, (2) the company’s accounting returns improved during the war but these higher accounting returns did not translate into higher stock returns for the shareholders, and (3) investors could have earned higher stock returns had they switched out of aircraft stocks after Pearl Harbor and reinvested the proceeds in the overall market.