Defense procurement Fraud, Penalties, & Contractor Influence.

Press reports of procurement fraud investgations, indictments, and suspensions are associated with significantly negative average abnormal returns in the stocks of affectd firms. Abnormal stock returns are significantly less negative, however, for firms ranking among the top 100 defense contractors than for unranked contractors, even after controlling for firm size, fraud's characteristics, and the firm recidivism. Abnormal returns are positively related to the change in a firm's subsequent award of government contracts. This results indicate that unranked contractors are penalized heavily for procurement frauds, experiencing both a decline in market value and a subsequent loss in government-derived revenues. Influential contractors, in contrast, are penalized lightly.