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Government Spending and Rising Industry Stars

Author

Listed:
  • Gomez Cram, Roberto
  • Guo, Yunhan
  • Kung, Howard
  • Mecca, Luca

Abstract

Government spending is large, persistent, and disproportionately allocated to a select number of firms within industries through federal procurement contracts. To identify the effects on firm outcomes, we construct government spending shocks at the firm level as the difference between realized and expected contract awards. We measure expectations by tracing the allocation of each dollar to firms back to appropriations bills and exploiting predictable agency-to-firm procurement shares. Firms receiving positive government spending shocks increase markups and profitability, outperform industry peers in the stock market, and gain market share, fostering rising industry stars.

Suggested Citation

  • Gomez Cram, Roberto & Guo, Yunhan & Kung, Howard & Mecca, Luca, 2025. "Government Spending and Rising Industry Stars," CEPR Discussion Papers 20454, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20454
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    File URL: https://cepr.org/publications/DP20454
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    Keywords

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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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