Non-public contracts, cash flows and firm value: the case of Lockheed

Shreesh Deshpande and Vijay Jog

Review of Accounting and Finance, 2014, vol. 13, issue 3, 274-290

Abstract: Purpose - – This study aims to examine a large, non-disclosed production contract awarded to Lockheed Corp. in the context of a trade-off between a contractually required non-disclosure clause and the need (as a publicly traded firm) to disclose material information to its shareholders. This production contract generated significant cash flows to the firm as evidenced by growth in its earnings. However, the existence of the production contract and its contribution to Lockheed’s earnings, was not disclosed by the firm to shareholders and potential investors while the production contract was being executed. Design/methodology/approach - – The authors examine the market reaction to several key contract events which were not disclosed at the time they occurred, in compliance with the contractually required non-disclosure clause. Findings - – A statistically significant stock price reaction around the time of the award of this non-public contract, indicative of trading by some capital market participants using non-public information was documented. Originality/value - – Because similar large non-public contracts funded by the government are common in the industrial economy, we conclude by discussing implications for organizational structure, firm’s cost of capital, equity-based compensation and market efficiency.

Keywords: Disclosure; Contracts; Cash flow; Firm valuation; Special access programs; G3; L64 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:v:13:y:2014:i:3:p:274-290

DOI: 10.1108/RAF-03-2013-0035

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().