WhoControls the Defence Industry ?

Defence markets exhibit extreme asset specificity and bilateral monopoly. Transaction-cost economicspredicts state ownership or control in such circumstances. This paper examines what governments actuallydo. Ownership alone does not determine control. A state with zero equity can still have influencethrough governance provisions and legal tools. Using large language model extraction from annual reports,supplemented by hand-coding, we compile a leximetric dataset on corporate governance and state control for107 of the world’s largest defence companies, drawn from the SIPRI Top 100 for 2022–2024, in 24 countries.We construct a novel State Influence Index (SII) aggregating voting power, voting enhancements, boardappointment and veto rights. State ownership is bimodal: full state ownership at one end, no state ownershipat the other. Formal control varies independently. China and Russia combine full ownership with full control.TheUnited States has no ownership and little formal control, relying instead on security agreements, revenuedependence and personnel interchange. The rest of the distribution is dispersed. Some countries combineminority equity with legal devices that amplify formal control well beyond ownership stakes. Others rely onregulatory mechanisms with little or no formal governance authority. In several cases, states have delegatedcontrol to domestic families operating under implicit state leverage. A complementary State Restraint Indexshows that European companies with high state influence tend also to score higher on voluntary self-limitation,consistent with credible commitment to attract private capital. Cross-border cooperation is producing newgovernance architectures that partition operations across national subsidiaries to reconcile economies of scalewith sovereign control. Corporate governance mechanisms matter most when defence entities operate beyondthe home state’s jurisdiction, where regulatory authority alone does not reach. The patterns are consistent withtransaction-cost and property-rights reasoning about asset specificity and bilateral dependence, although theinstitutional form of state control varies with legal tradition and political economy