DO CORPORATE OFFICERS’ POLITICAL CONNECTIONS AFFECT DOD CONTRACTOR PROFITABILITY? A 10-YEAR, DATA-DRIVEN ANALYSIS OF U.S. PUBLIC FIRMS

Abstract

This project uses a disciplined, data-driven approach to analyze the effect that political connection has on possible excessive profits of Department of Defense (DoD) contractors. Such connections could influence government acquisition and lead to non-ideal outcomes that increase government costs. Our research follows the methodology of C. Wang’s 2014 research and C. Wang and J. San Miguel’s 2012 research, both published in the Journal of Public Procurement, in conducting biographical analysis of corporate governors and comparative analysis of return on assets (ROA) against non-defense firms, controlled for size and industry standard industrial classification. This research seeks to identify if the political connections of the leadership of listed Top 100 Defense Contractors over a 10-year period affected government cost outcomes. Our research finds that DoD contractors earned 0.9% additional ROA above non-defense firms, equating to $11.4 billion in excessive profitability. Among the variables examined, only the percentage of politically heavily connected directors at a given firm holds a marginally significant explanatory relationship to difference in ROA between control and sample firms. This should encourage additional research with different data sets and further examination of the impact of social connection as a piece of the excessive profitability puzzle.