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R. Gomez Cram, Y. Guo, H. Kung, and L. Mecca: Government Spending and Rising Industry Stars

March 7, 2025

We construct detailed ex ante firm-level exposures to government spending by linking federal procurement data to appropriations bills, which grant agencies the budget authority to procure goods and services. We find that government spending is large, persistent, and disproportionately allocated to a select number of firms within industries. These firms earn large abnormal returns and steadily gain market share, with these effects concentrated in a few trading days coinciding with contract award announcements. Reflecting their growing market share, firms that repeatedly receive government contracts experience rising profitability and increasing markups, creating rising industry stars.

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