Profits of U.S. defense contractors

During the period 1970–1989 the profit rates of the top 50 defense contractors substantially exceeded those of comparable nondefense companies. This conclusion holds regardless of whether profits are measured by the firms’ accounting rate of return on investment or assets or by the stock‐market payoff to shareholders in the form of dividends and capital gains. Investing in defense contractors was not significantly riskier than investing in comparable nondefense companies. In the cross section the relation between stock‐market returns to investors and the defense‐intensiveness of the contractors was a polynomial of second degree.