Market Reaction to Dod Contract Delay

Development projects are occurring at a faster rate in the civilian world than for the Department of Defense (DoD). In the civilian world, faster development means quicker delivery and sales. In the DoD, quicker product development equates to a more capable warfighter. On average, DoD Acquisition Category One (ACAT I) development projects are approaching a 15 year procurement cycle. In the last three years, acquisition cycle time has grown nearly 20 percent. It turns out that the very companies that have learned to be faster, leaner and more effective in their civilian endeavors do not seem to be functioning the same on their DoD contracts. The impact to the tax payer, the warfighter and national security are the impetus for this research. This research examines the heretofore uninvestigated relationship between DoD delay and its impact on shareholder wealth. The results show positive generation of significant wealth for shareholders at the announcement of a DoD delay. This finding indicates a possible systemic incentive for the observed delays. At the very least, the generation of significant wealth for the owners of the firm does not dissuade firms from delay.