Firm Performance in Regulated Markets: The Case of Spanish Defence Industry

Abstract

This paper studies the effects of legal reforms associated with defence and public procurement on firm performance. With this aim, a theoretical framework for the reaction of defence firms to regulatory changes is developed. Its predictions have been empirically assessed using the last reforms implemented in Spain. Our results suggest that these new regulations have allowed the main defence contractors to outperform the other defence contractors in terms of productivity, having no effect on profitability. These findings are in line with theoretical priors. Therefore, it can be claimed that governmental interventions have had an effect on firm performance. We also provide evidence that, while the procurement procedures and the contract law put into place in 2011 have principally affected the productivity of large firms, the centralization process established in 2014 has exerted a higher influence on SMEs.
KEYWORDS:

• Defence industry
• public procurement
• regulated markets
• firm performance

Description