Killing the Deal

Abstract

ABSTRACT On October 2nd, 2018, Jamal Khashoggi, a journalist and critic of the Saudi Arabian regime, disappeared after a visit to the Saudi Arabian consulate in Turkey nd was most likely murdered shortly afterwards. After this incident, a period of uncertainty started about whether or not a major arms deal that was signed between the United States and Saudi Arabia would still going to be approved by Congress or in turn will be rejected. The main findings presented in this study clearly demonstrate that the uncertainty surrounding the deal caused a significant drop in the daily return on the equity prices of US defense firms. This result suggests that investors believe that it is very likely that the major arms deal will be blocked by Congress in the short-run thereby reducing the business perspectives of the US defense-related industry. Besides these findings also imply that investors expect that the US president will not use its veto power or make permanently use of the exemption clause provided in the US arms trade legislation.