Trading on government contracts: The investment potential of public procurement awards

Abstract

This paper examines the relationship between government contract awards and stock performance. I find that government contracts are concentrated in the manufacturing, high-technology, and health sectors, reflecting policy priorities. Moreover, the probability of receiving a government contract increases for larger and more stable firms. Portfolio analyses show that investment strategies based on firms securing large government contracts generate positive cumulative returns and outperform the market. Additionally, contract size predicts long-term stock returns, driven primarily by large-cap firms. These findings offer insights for investors looking to leverage public procurement trends in strategic decision-making.