Description:
This study examines the influence of upcoming general elections on the sales revenues of major defense companies. The direction of this effect is theoretically not a priori clear as governments face a trade-off in an election year. On the one hand, the incumbent cabinet might try to increase the odds of being re-elected by boosting the national economy and employment rate through increasing the procurement from the domestic defense industry. On the other hand, it might be more beneficial for the ruling parties to cut defense spending in an election year to finance expansions in other public spending categories that are preferred more by voters. Based on the empirical findings, I can draw several broad conclusions. First, as a result of election-induced procurement decisions, the total revenues of defense companies in major arms-producing countries increase when domestic elections are approaching. Second, elections in democratic foreign countries cause a fall in the revenues received by domestic defense firms as foreign governments are likely to shift their public expenditures away from defense imports and towards domestic contractors or even to other public spending categories. In contrast, elections in autocratic foreign countries slightly improve the defense sales of arms producers as authoritarian rulers try to prolong their stay in office by signalling their military capabilities and repressing any political actions of challengers. Finally, governments of countries that are subject to serious security risks are more likely to increase their purchase of military-strategic items abroad when elections are upcoming for protection purposes