The Role of G(overnment) in Corporate ESG Policies

Nickolay Gantchev, Jim Goldman, and Shu Zhang*

November 2022

We study how the allocation of federal contracts influences the sustainability of corporate policies.
We find that a firm’s poor record of environmental and social (E&S) incidents is associated with
losing government contracts and facing worse contract terms. ‘Punished’ contractors improve their
E&S policies in subsequent years and their government business gets reallocated to other firms
with lower information asymmetry. These effects are substantially stronger for small, women-
owned, and minority-owned businesses. Our results indicate that federal procurement plays not
only a disciplining role in improving firms’ E&S policies, but also a distributive role in creating
opportunities for disadvantaged businesses.

Keywords. Government contracts; ESG; Sustainability; Corporate governance; Firm diversity

JEL Codes. G34, G38, H57, M14

*
Gantchev (nickolay.gantchev@wbs.ac.uk) is with the Warwick Business School at the University of Warwick,
CEPR, and ECGI; Goldman (jim.goldman@wbs.ac.uk) and Zhang (shu.zhang.1@wbs.ac.uk) are with the Warwick
Business School at the University of Warwick.

Electronic copy available at: https://ssrn.com/abstract=4280531

 Prior work shows that investors monitor firms’ environmental, social and governance

(ESG) policies and demand changes by directly engaging with management (e.g., Dimson et al.,

2015 and 2018; Starks et al., 2018; Krueger, Starks, and Sautner, 2021) or alternatively imposing

discipline through their exit decisions (Gantchev, Giannetti, and Li, 2022). It is also known that

negative news about firms’ ESG policies is associated with negative abnormal returns (Karpoff,

Lott, and Wehrly, 2005; Flammer, 2013; Krueger, 2015; and Serafeim and Yoon, 2020), and

several studies find evidence that an ESG business focus improves firm performance and limits

downside risk (see, e.g., Edmans, 2011; Lins, Servaes, and Tamayo, 2017; Albuquerque,

Koskinen, and Zhang, 2019).

The role of government in fostering sustainable business has so far been confined primarily

to regulating disclosure requirements aimed at enhancing transparency and thus facilitating

investors’ ability to allocate capital to sustainable uses. For example, the Securities and Exchange

Commission (SEC) is currently examining disclosures to be made by asset managers that market

themselves as ESG-focused. The academic debate on the transition to sustainable economy has

largely ignored the effectiveness of government through its procurement activities. 1 This is a

notable omission as the US government has about $600 billion of annual purchasing power (as of

2021) and could conceivably take on a leading role in promoting sustainable business practices.2

Our goal in this paper is to understand whether and how government contracts affect the

sustainability of corporate policies. We examine the extent to which federal procurement contracts

respond to the revelation of negative information about the environmental and social impact of a

contractor’s operations. In addition, we investigate whether the government’s purchasing activities

1
See OECD (2016) for an example of a recent report discussing the policy aspects of taking into account the
environmental impact of public procurement.
2
See How US government procurement can lead the clean economy by Cynthia Vallina, GreenBiz, February 2021,
available at https://www.greenbiz.com/article/how-us-government-procurement-can-lead-clean-economy.
2

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advance opportunities for disadvantaged businesses, such as minority- and women-owned

businesses that have grown in prominence in recent years.

Our empirical analysis consists of three steps. First, we establish that the negative news

coverage of a firm’s E&S policies affects the amount of government business the firm receives.

We find that a firm’s recent history of E&S incidents influences not only the number and total

value of government contracts it receives, but also the features of these contracts. A worse record

of E&S infractions is associated with a lower likelihood of non-competed contracts, shorter

contract durations, and a reduced probability of cost-plus (i.e., cost reimbursement plus pre-

determined profit fee) contracts.3 Further, the revelation of a negative E&S incident has a 57%

more negative valuation impact for government contractors than for other firms. This suggests that

the government may play a disciplining role distinct from that of other customers in the product

market.

Second, we examine the heterogenous effects of having a history of E&S incidents on

different subgroups of government contractors. The federal government reserves the allocation of

a fraction of all contracts to a ‘special’ set of businesses that typically face more severe constraints

in the procurement process (e.g., small disadvantaged, women-owned, and minority-owned

businesses). We assess how negative news coverage of disadvantaged firms’ E&S policies impacts

the amount of government business that such firms receive relative to other firms. We find that a

prior record of bad E&S incidents has a more pronounced negative effect on special contractors

than on other firms, as they are more likely to experience a reduction in the number of contracts

received, lower total contract amounts, shorter contract durations, and a lower probability of non-

3
Cost-plus contracts cover the seller’s costs plus a fee, the contractor’s profit, which is usually stated as a percentage
of the contract amount. Cost-plus contracts are less risky than fixed-price contracts, which expose the vendor to input
cost uncertainties.
3

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compete and cost-plus contracts. These results provide a preliminary indication that these types of

disadvantaged contractors may have stronger incentives to improve their E&S policies to maintain

or gain government business in the future.

Finally, we investigate the economic mechanism underlying our main results. In particular,

we study whether government contracting is associated with negative (positive) outcomes for bad

(good) E&S behavior. We find that a firm that suffers bad E&S incidents and is subsequently

‘punished’ by losing federal government business improves its future E&S record over the

subsequent three years. In addition, government contracts get reallocated from punished vendors

with bad prior E&S records to other contractors providing the same product or service to the same

federal agency. Strikingly, this contract reallocation benefits to a larger extent disadvantaged

contractors with lower information asymmetry, suggesting both a disciplining and a distributive

effect of federal procurement. Through a combination of the threat of losing government business

following a history of E&S incidents and the possibility of gaining more business following a good

E&S record, government contracting appears to materially influence firms’ E&S policies.

While the US federal government does not appear to follow explicit sustainability goals in

awarding contracts over our sample period, the Office of Federal Procurement Policy has invested

substantial efforts in improving the transparency of its decision-making process. In particular,

since 2014, the Digital Accountability and Transparency Act (DATA) requires federal contract

and grant awards to be publicly available and easily searchable. The DATA Act made government

spending more tractable and transparent, which we find is associated with a stronger disciplining

effect of government contracting. The effects of past E&S incidents on contract amounts and other

contracting features are more pronounced after the DATA Act, with even stronger effects for

special contractors. The evidence is consistent with the notion that increased transparency in

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government contract allocation imposes a disciplining effect on awarded contracts and their

features, particularly for special contractors who likely have worse governance mechanisms in

place.

This paper contributes to a growing literature studying the sustainability of corporate

policies. So far, prior work has relied predominantly on third-party ratings to measure firms’

sustainability and uncovered several ownership and governance characteristics that are associated

with sustainability ratings (see Gillan, Koch, and Starks, 2022, for a recent survey). In addition,

focusing on political aspects, Di Giuli and Kostovetsky (2014) document that the political leanings

of firms’ executives and headquarter locations substantially affect the firms’ sustainability scores.

A few studies have also exploited micro-data to examine specific dimensions of sustainability. For

instance, Xu and Kim (2022) and Cohn and Wardlaw (2016) show that the relaxation of financing

constraints leads firms to reduce toxic releases or the frequency and severity of work accidents,

respectively. We contribute to this literature by showing how firms’ participation in procuring

government business influences the sustainability of their policies and how reputation effects can

benefit typically disadvantaged firms. We focus on E&S incidents rather than sustainability scores

and study both public and private firms, which allows us to move away from the black box of

sustainability ratings and from the narrower focus on publicly-listed firms.

Our results are also related to studies documenting how government procurement practices

affect corporate behavior, such as firm employment, profitability, and investment (e.g., Barrot and

Nanda, 2020; Cohen and Li, 2020; Ng and Stanfield, 2022). We add to this literature by showing

that the US government promotes sustainable business practices through its procurement activities.

The government has social impact across a wide variety of firms, especially small disadvantaged

ones. More broadly, our results also contribute to the literature showing that government

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procurement can affect economic outcomes beyond its direct impact on contractors (Cohen, Coval,

and Malloy, 2011; Goldman, 2020; Kim and Nguyen, 2020).

1. The US federal procurement process

The federal procurement process begins when an agency of the federal government

requires a product or service by making ‘a request for proposal’. The request includes details of

the products or services needed, length of the project, contract selection method, and submission

deadline (Boland and Godsell, 2020).

Information about opportunities for government contracts is available from the Federal

Business Opportunities website (fbo.gov, now moved to “Contract Opportunities”

https://sam.gov/content/opportunities). Potential bidders can submit contract offers, which are

evaluated by the agency’s employees based on several criteria, with the bid price playing the most

significant role. Other non-monetary factors include, among others, the execution ability and the

past performance of the contractors.

The Federal Funding Accountability and Transparency Act (FFATA) was signed into law

by President Bush on September 26, 2006, and became effective in 2007. It pertains to all entities

receiving federal funds and requires public disclosure (through USAspending.gov) of the name

and location of the entity receiving the awarded contract (including the entity’s unique identifier),

the amount of the award, the transaction type, the funding agency, the NAICS code, and other

contract features.

The Digital Accountability and Transparency Act (DATA Act) of 2014 expands the

requirements of FFATA. It imposes government-wide standards for financial data and requires

expanded disclosure, such as linking federal contract, loan, and grant spending information to

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federal programs. The DATA Act is aimed at improving transparency, streamlining the reporting

requirements, and reducing compliance costs.

2. Data sources and sample description

2.1 Government contracting data

We obtain data on government contracts from the Federal Procurement Data System New

Generation (FPDS-NG), which tracks the procurement contracts of the US Federal Government.

This comprehensive system, accessed through USAspending.gov, provides detailed information

on nearly all federal contracts (with an estimated value of at least $10,000) for about 65 different

branches, departments, and agencies of the federal government. USAspending.gov is an extensive

government contract database increasingly being used by finance researchers (e.g., Boland and

Godsell, 2020; Cohen and Li, 2020; Goldman, 2020). It provides information on the value of the

contract, the date on which it was awarded, the agency that awarded it, the type of product or

service procured, any modifications of the contract, degree of competition, and incentive features

(cost-plus or fixed price).

The unit of observation in our data is a contract action. A single contract may have multiple

contract actions (e.g., the initial award and follow-up modifications for additional services). For

our purposes, we mainly focus on contract initiations, not modifications.

Our sample period starts in 2007 to coincide with the start of our data on firms’

environmental and social polices (obtained from RepRisk as described below). In addition, federal

procurement data prior to 2007 are not held to the same data quality standards as today. Legislation

governing data quality was implemented with the Federal Funding Accountability and

Transparency Act (FFATA), which became effective in 2007. The transparency efforts of FFATA

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were expanded with the enactment of the Digital Accountability and Transparency Act (DATA

Act) Pub. L. 113-101 on May 9, 2014.

Figure 1 plots the total number of contracts and total dollar amounts per year in our sample

between 2007 and 2020. Even though the number of contracts more than doubles (from 308,792

over 2007-2013 to 669,710 over 2014-2020), the total dollar amount awarded increases less

dramatically (from $34.3 billion to $39.2 billion, respectively). The contract amounts peak in

2010, and then again in 2018, whereas the highest number of contracts awarded is seen in 2018-

2019. Both the number of contracts and total amounts awarded are lowest in 2014, which coincides

with the year in which the DATA Act was signed into law.

Table 1 splits contractors by their publicly listed status. Even though only about 9% of

government contractors in a given year are public firms (91% are private), public contractors

receive on average 26% of the total annual contract amounts awarded. The proportions of public

vs. private contractors and the contract amounts allocated to each group remain stable over the

sample period.

Panel A of Table 2 provides additional descriptive contract-level statistics. The average

size of a contract is $76,583 (corresponding to Log(Amount) of 7.38 as reported in Panel A) and

the average duration is 55 days. More than two thirds of contracts are available for competitive

bidding (Compete) and about one percent of contracts cover expenses plus a pre-determined profit

fee (Cost-plus). Compete and non-cost-plus contracts put more pressure on contractors in terms of

cost control and profitability, and thus, are less desirable from a contractor’s point of view.

In Panel B of Table 2, we compare different subgroups of government contracts. We define

as Special the contracts that are awarded to women-owned, minority-owned, and small

disadvantaged businesses. The remaining contracts are described as Regular. All differences in

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means between each Special contract category and Regular contracts are statistically significant at

1%. It appears that contracts by women-owned businesses are smaller in value, longer in duration,

and more likely to be competitive and cost-plus, compared to regular contracts. In contrast,

minority-owned businesses receive contracts with larger amounts, which are also less likely to be

subject to competitive bidding. Small disadvantaged businesses are least likely to receive

competitive contracts, but most likely to be awarded cost-plus contracts.

2.2 News coverage of firms’ environmental and social (E&S) policies

We obtain negative news coverage of a company’s E&S policies from RepRisk, which

monitors over 80,000 media, stakeholder, and third-party sources, including print and online

media, NGOs, government bodies, regulators, think tanks, newsletters, social media (e.g., Twitter),

blogs, etc., for news related to firms’ ESG-related practices. As standard in the literature, we focus

on E&S news only, excluding governance news.

RepRisk news are rarely about large-scale or catastrophic events (e.g., the BP Gulf of

Mexico oil spill), but rather reflect firms’ normal course of business, such as violations of national

regulations or international standards, poor employment conditions and discrimination, tax

evasion, etc. RepRisk reports firms’ news on a monthly basis, which we aggregate to the yearly

level before we match to the contracting data from FPDS-NG. RepRisk has provided us with a

custom link between their RepRisk identifier RR_ID and the DUNS numbers used as unique

contractor identifiers in the federal procurement data.4

Matching the sample of procurement contracts from FPDS-NG with 60,948 RepRisk firm-

years, we end up with 6,884,756 contracts over the sample period of 2007-2020, which includes

4
DUNS stands for Data Universal Numbering System, which is a proprietary system developed and managed by Dun
& Bradstreet.
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contracts awarded to both publicly-listed and private contractors. Even though matching to

RepRisk reduces our starting sample of government contracts, our final sample is on par with that

in, for example, Brogaard et al. (2020) who study about 5.4 million government contracts allocated

between 2001 and 2012.

Panel A of Table 2 reports the frequency of E&S incidents at the firm-contract level. On

average, a firm in our sample sees 1.88 bad news items related to its E&S policies between years

t-3 to t-1. In Panel B, we compare the E&S incident records of different subsamples of contractors.

We see that public contractors have more E&S incidents than private ones and regular contractors

have more E&S incidents than special ones. Public firms are more likely to be present in the federal

procurement data throughout the sample period. It is also likely that they experience more media

coverage of their E&S incidents.

3. Does a contractor’s poor E&S record affect its government business and valuation?

Our first objective is to evaluate whether and how firms’ prior records of E&S incidents

influence the probability of receiving government business. To this end, we study whether a firm’s

average E&S incidents over the past three years affect the number and amount of government

contracts awarded in year t as well as the features of these contracts. We also explore whether

public contractors with substantial government business experience negative valuation effects

around the revelation of bad E&S news about their operations.

3.1 E&S incidents and government contracts

We examine whether negative news coverage of a firm’s E&S policies impacts the amount

of government business the firm receives. To do so, we regress a firm’s number of contract

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initiations, (logarithm of) total contract amount or contract features at the end of quarter t on the

firm’s past E&S record, measured by the average E&S incidents over years t-3 to t-1:

𝐺𝑜𝑣 𝐶𝑜𝑛𝑡𝑟𝑎𝑐𝑡 (𝐹𝑒𝑎𝑡𝑢𝑟𝑒𝑠)!,# = 𝛼 + 𝛽 × 𝐸&𝑆 𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑡𝑠!,(#%&,#%') + 𝛿! + 𝜉# + 𝜀!,# , (1)

where 𝐺𝑜𝑣 𝐶𝑜𝑛𝑡𝑟𝑎𝑐𝑡 (𝐹𝑒𝑎𝑡𝑢𝑟𝑒𝑠)!,# refers to the number/total dollar amount (features) of

awarded government contracts to contractor f in quarter (year) t, and 𝐸&𝑆 𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑡𝑠!,(#%&,#%') is

the firm’s average number of E&S incidents over years t-3 to t-1. In all regressions, we include

firm ( 𝛿! ) and time ( 𝜉# ) fixed effects. In the above equation, a negative coefficient on

𝐸&𝑆 𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑡𝑠!,(#%&,#%') indicates a negative effect of E&S infractions on the firm’s government

business in quarter t (Panel A) or specific contract features (e.g., duration, compete and cost-plus

status) in year t (Panel B).

In Panel A of Table 3, the observations are at the contractor-quarter level, and we control

for firm and quarter fixed effects. In column 1, the dependent variable is the firm’s number of new

contract initiations in quarter t. The negative coefficient on 𝐸&𝑆 𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑡𝑠!,(#%&,#%') indicates

that a poor E&S record over years t-3 to t-1 is associated with a statistically significant drop in

awarded contracts in quarter t. The economic magnitude is substantial; a one-standard-deviation

increase in E&S incidents (4.37) is associated with a 1.18 (0.269×4.37) drop in contracts awarded,

equivalent to 80% of the unconditional average.

In column 2, we use instead the logarithm of the total dollar amount of contracts awarded

to the firm in quarter t. We find that a one-standard-deviation increase in E&S incidents is

associated with a drop of about 30% of contract amount per quarter.

In Panel B, we study the effects of the firm’s recent E&S record on several contracting

features. The observations are at the contract level, and we include firm and year fixed effects. In

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column 1, we confirm (at the contract level) the negative effect of E&S incidents over years t-3 to

t-1 on the log(amount) awarded. In column 2, the dependent variable is Compete, a dummy equal

to one if the contract is coded as subject to competitive bidding, and zero otherwise. We find that

for a one-standard-deviation increase in E&S incidents, the probability of a firm obtaining a

competitive contract increases by 4.41 percentage points (4.37×0.0101), that is, 5.77% of the

unconditional probability of receiving such a contract.

In columns 3 and 4, we find additional supportive evidence that a firm’s history of E&S

incidents has a negative impact on the features of the government contracts it gets awarded. A one

standard deviation higher number of E&S incidents is associated with 2.37 days (4.37×0.5427)

lower duration (equivalent to a 4.3% decrease relative to the average contract duration), and a 0.09

percentage points (4.37×0.0002) lower likelihood of receiving a cost-plus contract in year t

(equivalent to a 9.0% decrease relative to the average probability of a contract being cost-plus).

Cost-plus contracts are more favorable to contractors because they limit the vendor’s exposure to

input cost uncertainties.

Overall, the results in Table 3 suggest that a firm’s recent history of E&S incidents

influences not only the amount of government business it receives, but also the features of the

allocated government contracts. A worse record of E&S incidents is associated with a reduced

likelihood of receiving a non-competed contract, a lower contract duration, and a decreased

probability of being awarded a cost-plus contract.

3.2 E&S incidents and special government contracts

Next, we examine the heterogenous effect of a firm’s recent history of E&S incidents for

different subgroups of government contractors.

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 In Table 4, we re-estimate the model in equation (1) for subgroups of government

contractors. In particular, our aim is to compare whether a firm’s recent history of E&S incidents

has a differential effect for publicly-listed vs. private contractors as well as regular vs. special (i.e.,

women-owned, minority-owned, and small disadvantaged) contractors. We expect that the latter

groups (private and special contractors) will be more negatively affected by bad E&S news about

the firms’ operations. In all specifications, we control for the amount of past government business

by adding Log(1+ Number of contracts (t-1)) and again include firm and year fixed effects.

The results in Table 4 present some interesting patterns that are supportive of our

conjecture. Comparing public vs. private contractors in columns 1 and 2 of Panel A, we find that

following a poor record of E&S incidents over years t-3 to t-1, private contractors are more likely

to experience a drop in the amount of awarded contracts in quarter t. As shown in the last row of

Panel A, the effect is twice as large for private contractors than for public ones, if we compare it

to the respective sample means.

Similarly, Panel B shows that private contractors see a larger increase in the probability of

competitive contract bidding. In terms of economic magnitudes, the coefficient in column 1

indicates that a one-standard-deviation increase in E&S incidents translates into a 0.0035

(4.37×0.0008) lower likelihood of compete contracts for public contractors vs. 0.064

(4.37×0.0147) for private ones. In terms of the respective sample means, the effect for private

contractors is three times larger than the one for public contractors.

Panel C reveals that the difference in the economic effects is just as marked in terms of

contract duration. A one-standard-deviation increase in E&S incidents translates into a 1.07 days

(4.37×0.246) shorter duration for public contractors vs. a drop of 4.75 days (4.37×1.09) for private

ones. In terms of the respective sample means, the effect for private contractors is four times larger

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than the one for public contractors. In Panel D, we find that a poor record of E&S incidents is

associated with a lower occurrence of cost-plus contracts, even though the relative effects for

public and private contractors are more similar.

The comparisons between regular and special contractors in columns 3 and 4 highlight

substantial differences in the contractors’ sensitivity to negative E&S news. Special contractors

see a larger drop in the Log(Amount) of contracts awarded in quarter t (Panel A), a higher

incidence of competitive bidding (Panel B), and a larger reduction in duration (Panel C). In Panel

D, we also see a substantially larger decrease in the frequency of the cost-plus feature for special

contractors than regular ones.

Comparing the three different types of special contractors in columns 5-7, we find that

women-owned businesses are generally the most sensitive to a poor history of E&S incidents in

terms of experiencing bigger drops in awarded contract amounts, an increased incidence of

compete contracts, a lower duration, and a larger reduction in the likelihood of obtaining cost-plus

contracts.

Taken together, the results in Table 4 indicate that a prior record of bad E&S incidents has

a stronger negative effect on private and special contractors, suggesting that these types of

contractors may have stronger incentives to improve in order to maintain or gain government

business in the future. We explore this hypothesis in Section 4.

3.3 E&S incidents and firm valuation

In this subsection, we explore the market reaction to negative E&S news for the subsample

of public contractors with substantial government business. These are contractors whose sales to

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the government exceed 10% of their total annual sales, as reported in Compustat’s Business

Segment files.

In Table 5, we present the results of an event study. In particular, we compute firms’ daily

abnormal returns as the residuals of the Capital Asset Pricing Model (CAPM), which we estimate

over the 252 days before the E&S news event. We then cumulate abnormal returns from one day

before to one, two, or five days after the event. As controls, we include firm size (the logarithm of

the firm’s total assets), leverage (the sum of current liabilities and long-term debt, scaled by total

assets), return on assets (ROA), and past 12-month returns. We also include industry (at the two-

digit SIC level) and year fixed effects in all specifications.

As seen in columns 1 to 6, public contractors with substantial government business

experience more negative stock price reactions than non-contractors (and contractors with less

government business). For example, based on the coefficient in column 6, contractors experience

0.40 percentage points more negative CARs than non-contractors, which is equivalent to 57% of

the average CARs for other firms (0.40%/0.70%).

Importantly, the price reaction also captures expectations about future corporate actions.

That is, anticipation that these major government contractors may improve their E&S policies

would tend to reduce the negative price impact we observe. We examine this hypothesis in the

next section.

4. The ‘carrot’ and ‘stick’ effects of government contracting

So far, we have shown that firms with a history of E&S incidents experience a significant

drop in the number and dollar amount of government contracts awarded. In addition, bad E&S

news is associated with worse contract features, such as a shorter duration, a higher probability of

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competitive bidding and a lower incidence of cost-plus contracts. In this section, we investigate

whether losing government business following a history of E&S incidents is associated with

improving E&S outcomes. In addition, we study the reallocation of the lost contracts of vendors

with poor E&S records. We provide additional evidence on the potential mechanism in section 5.

4.1 Negative outcomes following bad contractor behavior

To evaluate whether following bad E&S news, ‘punished’ vendors that lose government

business try to improve their E&S records, we focus on firms that see an increase in E&S incidents

over t-1 to t. We then define a dummy Punish that equals one if a contractor either experiences a

contract amount cut or completely loses a contract in year t. We are interested in examining the

E&S performance over t to t+3 of contractors that get punished following an increase in their E&S

incidents over t-1 to t.

To measure a contractor’s future E&S record, we define E&S change (t, t+3) as a firm’s

E&S incidents in year t+3 minus E&S incidents in year t. Alternatively, we construct the dummy

E&S decrease (t, t+3) equal to one if there is a decrease in the number of E&S incidents over years

t to t+3, and zero otherwise.

The results are presented in Table 6. The negative coefficient on the interaction term

between E&S increase (t-1, t) and Punish indicates that contractors that lose government business

following an increase in bad E&S news in the past year experience a decrease in E&S incidents

over the subsequent three years. The effect is not only statistically, but also economically

significant. For example, in column 1, contractors who see an increase in E&S incidents over t-1

to t, followed by a punishment in year t, experience 0.0685 fewer E&S incidents over years t to

t+3; this is equivalent to a 43% reduction relative to the unconditional mean of E&S incidents.

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These results are confirmed in column 2 where we use the dummy for E&S decrease (t, t+3). Thus,

it appears that firms make efforts to improve their E&S policies following a bad E&S record that

results in losing federal government business.

In Panels B and C of Table 6, we consider different subgroups of contractors by contract

features. In particular, we use the dummy High compete for contractors with a proportion of

compete contracts in year t-1 above 75% (below 25%) of the distribution of contract

competitiveness in the sample, and use the dummy Long (Short) duration for contractors with an

average contract duration in year t-1 above 75% (below 25%) of the average distribution of

duration in the sample. We find that the effects are more pronounced for High compete and Long

duration contractors. In terms of economic magnitudes, an increase in E&S incidents over t-1 to t,

followed by a punishment at year t, is associated with a 0.037 drop in E&S incidents over years t

to t+3 for High compete contractors (column 1 of Panel B) and a 0.165 drop in E&S incidents for

Long duration contractors (column 1 of Panel C).

4.2 Positive outcomes following good contractor behavior

In this subsection, we investigate the reallocation of the lost contracts of vendors with poor

E&S records (‘punished’ contractors). This analysis is based on our earlier findings in Table 3,

where we show that a firm’s bad history of E&S incidents is associated with a drop in the amount

of government business the firm subsequently gets awarded. As poor E&S record gets punished,

offending firms attempt to improve their future E&S policies.

We examine what types of contractors benefit from the punishment of vendors with poor

prior E&S records. In particular, we want to understand whether the reallocation of government

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contracts following E&S infringements creates opportunities for special contractors, that is, small

disadvantaged, women-owned or minority-owned businesses.

To explore the reallocation of government business following a contractor’s history of E&S

incidents, we focus on punished ‘regular’ contractors and aggregate their E&S incidents over years

t-3 to t-1 (that is, in the three years before losing government business which occurs in year t). We

do this aggregation within each product/service code and agency code based on the (conservative)

assumption that only firms providing the same product or service to the same agency can benefit

from the reallocation of contract awards. We focus on regular contractors because special

contractors represent a much smaller fraction of allocated contracts.

In Table 7, we investigate whether the number or log(amount) of contracts awarded to

contractors in year t+1 varies with the aggregated E&S incidents over years t-3 to t-1 of punished

regular contractors. Columns 1 and 2 of Panel A focus on special contractors, whereas columns 3

and 4 study regular contractors. All regression specifications are at the firm-year level and include

firm and year fixed effects.

Not surprisingly, government contracts get reallocated from punished vendors with bad

prior E&S records to other special and regular contractors providing the same product or service,

as seen by the positive and statically significant coefficients on E&S incidents of punished

contractors (t-3, t-1). What is notable is that special contractors – small disadvantaged, women-

owned, and minority-owned businesses – benefit more from such reallocation of contractors,

relative to regular contractors. For example, based on column 1, we find that a one standard-

deviation increase (=263) in the E&S incidents of punished regular contractors is associated with

a 13.70 unit (0.0521*263) increase in the number of contracts awarded to special contractors

(operating within the same product code-agency cell) at time t+1, which is a 9.16% (13.70/149.48)

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increase in the total number of contracts of special contractors. This compares to a 3.07%

(18.64/606.88) increase in the total number of contracts of regular contractors in column 3. That

is, relative to regular contractors, special contractors appear to gain more opportunities from the

punishment of contractors with bad E&S records. This result is surprising because special

contractors likely suffer from higher information asymmetry, relative to regular contractors.

In Panel B, we investigate further the types of special contractors that benefit from the

reallocation of government contracts following E&S incidents. Specifically, we split special

contractors into those with longer (shorter) procurement relationships with the US government

defined as special contractors whose relationship duration is above (below) the 75th-percentile

(25th-percentile) of duration in the sample. We use relationship duration to proxy for the firm’s

information asymmetry.

The results in columns 1 and 3 suggest that special contractors with longer contracting

relationships with the federal government get allocated more contracts. The coefficient on E&S

incidents of punished contractors (t-3, t-1) is not significant for short duration special contractors

in columns 2 and 4.

These results complement our earlier findings in Table 6 that contractors that lose

government business following an increase in past E&S incidents improve their E&S records over

the subsequent few years. Here, we show that the reallocation of lost contracts from punished firms

benefits to a larger extent small disadvantaged, women-owned, and minority-owned contractors

with lower information asymmetry. Thus, federal procurement appears to play a distributive role

in creating opportunities for disadvantaged businesses following E&S incidents at other firms.

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5. Mechanism

Our results suggest that the allocation of government contracts appears to play a

disciplining role in improving firms’ E&S policies. Given that the Office of Federal Procurement

Policy does not expressly follow sustainability goals in awarding contracts over our sample period,

it seems somewhat unlikely that procurement officials would explicitly take into account a

contractor’s bad E&S behavior and award or withhold contracts merely based on its past E&S

record. What is then a plausible mechanism through which a firm’s E&S performance may

influence its standing as a government contractor?

The Office of Federal Procurement Policy has invested substantial efforts in improving the

transparency of its decision-making process. In particular, as mentioned earlier, the DATA Act of

2014 requires the Office of Management and Budget to establish a single searchable public

database (USAspending.gov) to disclose information on federal contract and grant awards so that

members of the public are able to track how their tax dollars are spent. Importantly, the DATA

Act mandates quarterly financial data reports by all federal agencies and requires the linking of

contract and grant data “to enable taxpayers and policy makers to track federal spending more

effectively.”

Thus, we expect that the DATA Act will make government spending more tractable and

transparent, which could have a disciplining effect on contract allocation. This disciplining role

could be due to enabling both federal procurement officers and market participants to track and

monitor government contract awards. Thus, we hypothesize that a contractor’s E&S record will

have a stronger bearing on awarded contracts and contract features after the implementation of the

DATA Act in 2014.

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 To test this hypothesis, we compare the effect of a contractor’s E&S incidents over t-1 to t

before and after 2014. As is shown in Table 8, the effects of E&S incidents on contract amounts

and other contracting features are more pronounced after the DATA Act, for both general and

special contractors. However, these effects are stronger for special contractors, which likely suffer

from greater information asymmetry about their operations. For example, based on the results in

columns 3 and 4, a one-unit increase in E&S incidents is associated with a decrease in contract

amount of 14.5% before the DATA Act, and 52.5% after the DATA Act.

The evidence in Table 8 suggests that increased transparency about the decisions of the

Office of Federal Procurement Policy imposes a disciplining effect on awarded contracts and

contract features, especially for special contractors who likely have worse governance mechanisms

in place.

6. Conclusions

We study the extent to which the allocation of federal contracts influences the sustainability

of corporate policies. We find that a firm’s poor record of environmental and social (E&S)

incidents negatively impacts both the amount and features of awarded government contracts. A

worse record of E&S incidents is associated with a lower likelihood of getting non-competed

contracts, shorter contract durations, and a reduced probability of cost-plus (i.e., cost plus pre-

determined profit fee) contracts. In addition, the revelation of a negative E&S incident has a 57%

more negative valuation impact for government contractors than for other firms.

Notably, a prior record of bad E&S incidents has a more pronounced negative effect on

special contractors, such as women-owned, minority-owned, and small disadvantaged businesses,

which are more likely to suffer from greater information asymmetry about their operations. Our

findings suggest that these types of contractors may have stronger incentives to improve their E&S
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policies to maintain or gain government business in the future. In addition, these small

disadvantaged businesses tend to benefit from the reallocation of contracts away from regular

contractors that experience a reduction in contract awards following E&S incidents. In that sense,

our results indicate that federal procurement can play a distributive role in creating opportunities

for disadvantaged businesses following E&S incidents at other firms.

Finally, we present evidence that the allocation of government contracts appears to induce

improvements in the E&S behavior of firms that lose government business due to their bad E&S

records and facilitate positive spillovers to the peers of contractors with good E&S behavior. Taken

together, our findings highlight a new disciplining role of federal procurement in improving firms’

E&S policies.

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Figure 1: US Federal Procurement Contracts and Amounts (2007-2020)
This figure presents the yearly total contract amounts (red line, left axis) and the yearly number of contracts (blue bars,
right axis) of the US Federal Government over the sample period of 2007-2020, as reported in the Federal Procurement
Data System New Generation (FPDS-NG).

US Fedaral Contracts and Amounts (2007-2020)

60 1400000

50 1200000

1000000
40
800000
30
600000
20
400000
10 200000

0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Number contracts Total contract amount

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Table 1: Federal Procurement Contracts (2007-2020)
This table displays the yearly number of contractors and total contract amounts ($ billion) between 2007 to 2020, separately for contracts allocated to private
(columns 1 to 4) and publicly-listed (columns 5 to 8) contractors. The last two rows display the average figures for the 2007-2013 (pre-DATA Act) and 2014-
2020 (post-DATA Act).

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Private Public Total
Total
Total Total % contract
Number % Total contract % Total Number % Total contract Total Number Number amount
Year contractors contractors amount amount contractors contractors amount amount contractors contracts ($bn)
2007 5113 0.89 8.48 0.83 647 0.11 1.79 0.17 5760 140696 10.27
2008 8500 0.91 31.07 0.73 835 0.09 11.63 0.27 9335 542644 42.69
2009 8156 0.91 29.10 0.73 783 0.09 10.85 0.27 8939 340944 39.94
2010 8254 0.91 46.00 0.81 792 0.09 10.81 0.19 9046 334671 56.80
2011 8034 0.92 25.34 0.75 746 0.08 8.30 0.25 8780 317614 33.63
2012 7492 0.91 23.67 0.72 705 0.09 9.19 0.28 8197 278507 32.86
2013 6677 0.91 16.91 0.71 626 0.09 7.05 0.29 7303 206465 23.96
2014 6323 0.92 14.69 0.80 584 0.08 3.65 0.20 6907 148324 18.34
2015 6786 0.91 17.51 0.72 650 0.09 6.80 0.28 7436 353444 24.31
2016 6712 0.92 24.68 0.70 608 0.08 10.72 0.30 7320 474511 35.40
2017 6725 0.92 30.94 0.70 620 0.08 13.15 0.30 7345 585043 44.08
2018 6048 0.92 38.13 0.72 559 0.08 14.57 0.28 6607 1148552 52.80
2019 5695 0.91 37.29 0.73 541 0.09 14.14 0.27 6236 1146115 51.43
2020 5433 0.91 36.38 0.75 518 0.09 11.90 0.25 5951 831982 48.26
Avg. 6853 0.91 27.15 0.74 658 0.09 9.61 0.26 7512 489251 36.76
Avg. 2007-13 7461 25.79 0.75 733 8.51 0.25 8194 308792 34.31
Avg. 2014-20 6246 28.52 0.73 583 10.70 0.27 6829 669710 39.22

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Table 2. Summary Statistics
This table displays descriptive contract-level statistics. Log(Amount) is the natural logarithm of federal action
obligations, which measures contract size. Duration represents the difference (in days) between the date on which the
contract was awarded and the date on which the contract ends. Cost-plus is a dummy variable that equals one if the
contract covers incurred expenses plus a profit fee, and zero otherwise. Compete is dummy variable that equals one if
the contract was awarded following a competitive bidding process, and zero otherwise. E&S incidents (t-3, t-1) and
E&S incidents (t-1, t) denote the average E&S incidents for a firm over years t-3 to t-1 and t-1 to t, respectively. In
Panel B, public contractors are publicly-listed, whereas private contractors are unlisted. Special contractors are
contractors classified as women-owned, minority-owned, or small disadvantaged businesses in the FPDS-NG
database. Regular contractors are contractors not classified as special. All differences in means between each Special
contract category and Regular contracts are statistically significant at 1%.

Panel A. Full sample descriptive statistics (contract-level)

(1) (2) (3) (4) (5) (6)
N Mean S.D. p25 p50 p75
Log(Amount) 6884756 7.38 2.6 5.41 7.5 9.23
Duration 6881391 54.58 111.48 1 7 38
Cost-plus 6884756 0.01 0.07 0 0 0
Compete 6884756 0.71 0.45 0 1 1
E&S incidents (t-3, t-1) 5617084 1.88 4.37 0 0 1.67

Panel B. Subsample descriptive statistics (contract-level)

(1) (2) (3) (4) (5) (6) (7)
Women- Minority- Small
Public Private Regular Special
owned owned disadvantaged
N--> 1,168,599 5,456,797 6,545,948 338,808 246,860 107,754 35,295
Log(Amount) 7.35 7.31 7.38 7.36 6.81 8.77 9.48
Duration 51.28 53.82 53.53 75.01 66.71 103.17 140.77
Cost-plus 0.0024 0.01 0.01 0.01 0.01 0.01 0.02
Compete 0.69 0.72 0.71 0.77 0.82 0.65 0.36
E&S incidents (t-3, t-1) 4.19 1.16 1.95 0.08 0.07 0.06 0.05

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Table 3. Effect of Past E&S Incidents on Government Contracts
Panel A of this table reports the effect of a firm’s past E&S incidents on the quarterly number (column 1) and amount
(column 2) of contracts awarded to the firm. Number contracts is the number of contract initiations received by firm
i in quarter t. Log(Amount) is the logarithm of aggregated contract amounts received by firm i in quarter t. E&S
incidents (t-3, t-1) is the average of E&S incidents of firm i over years t-3 to t-1. Observations in Panel A are at the
firm-quarter level. All specifications include firm and quarter fixed effects. Panel B reports the effects of E&S
incidents on contract features. Compete is dummy variable that equals one if the contract was awarded following a
competitive bidding process, and zero otherwise. Duration represents the difference (in days) between the date on
which the contract was awarded and the date on which the contract ends. Cost-plus is a dummy variable that equals
one if the contract covers incurred expenses plus a profit fee, and zero otherwise. Observations in Panel B are at the
contract level. All specifications include firm and year fixed effects. Standard errors, clustered by firm, are reported
in parentheses. ***, **, * indicate statistical significance at the 1%, 5%, and 10% level, respectively.

Panel A: Firm-level regressions (firm-quarter panel)

(1) (2)
Number contracts Log(Amount)
E&S incidents (t-3, t-1) -0.269*** -0.079**
(0.063) (0.031)

Fixed Effects Firm, Quarter Firm, Quarter

Observations 1051700 970352
Adj. R-squared 0.656 0.501

Panel B: Contract-level regressions

(1) (2) (3) (4)
Log(Amount) Compete Duration Cost-Plus
E&S incidents (t-3, t-1) -0.0512** 0.0101* -0.5427** -0.0002***
(0.0260) (0.0058) (0.2734) (0.0001)

Fixed Effects Firm, Year Firm, Year Firm, Year Firm, Year
Observations 5613260 5617082 5419851 5617082
Adj. R-squared 0.499 0.320 0.522 0.550

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Table 4. Effect of Past E&S Incidents on Government Contracts (Subsample Analysis)
This table presents the results of regressions examining the impact of past E&S incidents on contracting features for
different types of government contractors. Public contractors are publicly-listed, whereas Private contractors are
unlisted. Special contractors are contractors classified as women-owned, minority-owned, or small disadvantaged
businesses in the FPDS-NG database. Regular contractors are contractors not classified as special. All specifications
include firm and year fixed effects. Standard errors, clustered by firm, are reported in parentheses. Statistical
significance at the 10%, 5%, and 1% level is denoted by *, **, and ***, respectively.

(1) (2) (3) (4) (5) (6) (7)

Women- Minority- Small
Public Private Regular Special
owned owned disadv.
A. Log(Amount )
E&S incidents -0.0260*** -0.0471*** -0.0146*** -0.0969*** -0.1541*** -0.0882** -0.0782**
(0.0005) (0.008) (0.006) (0.0284) (0.0654) (0.0396) (0.0315)
Observations 893153 4478394 5153195 218352 165233 66939 21315
Relative effect -2.56% -4.60% -1.45% -9.23% -14.28% -8.44% -7.51%

B. Compete
E&S incidents 0.0008*** 0.0147*** 0.0069*** 0.0341*** 0.0395** 0.0127*** 0.0219***
(0.0002) (0.004) (0.001) (0.0082) (0.0184) (0.0057) (0.0074)
Observations 893153 4478394 5153195 218352 165233 66939 21315
Relative effect 1.15% 2.04% 0.97% 4.43% 4.81% 1.95% 6.08%

C. Duration
E&S incidents -0.246*** -1.086*** -0.069*** -7.101*** -5.416** -11.296*** -7.319**
(0.056) (0.176) (0.022) (1.396) (3.069) (5.983) (3.436)
Observations 893153 4478394 5153195 218352 165233 66939 21315
Relative effect -0.48% -2.01% -0.13% -9.46% -8.11% -10.94% -5.20%

D. Cost-plus
E&S incidents -0.0001*** -0.0001*** -0.0001*** -0.0004*** -0.0007** -0.0004** -0.0002**
(0.00003) (0.00004) (0.00004) (0.0001) (0.0003) (0.0002) (0.0001)
Observations 893153 4478394 5153195 218352 165233 66939 21315
Relative effect -4.16% -1.96% -1.00% -4.00% -7.00% -4.40% -1.00%

Fixed Effects Firm, Year

Controls Log(1+ Number of contracts (t-1))

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Table 5. Valuation Effects around E&S News Events
This table reports the cumulative abnormal returns (CARs) around E&S news events for publicly-listed government
contractors whose sales to the government exceed 10%, as reported in Compustat’s Business Segment files. CAR[-
1,+1] is the cumulated abnormal return from one day before to one day after an E&S incident announcement. CAR[-
1,+2] and CAR[-1,+5] are defined analogously for days -1 to +2 and days -1 to +5 around an E&S incident. Abnormal
returns are calculated as the difference between the stock’s return and the return estimated from the Capital Asset
Pricing Model (CAPM). In columns 2, 4, and 6, the regressions include controls for Size, the logarithm of the firm’s
total assets; Leverage, the sum of current liabilities and long-term debt (DLC + DLTT), scaled by total assets (AT);
return on assets (ROA), Earnings Before Interests, Taxes, Depreciation and Amortization (EBITDA), divided by total
assets (AT); and 12m average return, the average of the firm’s monthly stock returns over the past 12 months. All
specifications include industry (two-digit SIC) and year fixed effects. Standard errors, clustered by firm, are reported
in parentheses. Statistical significance at the 10%, 5%, and 1% level is denoted by *, **, and ***, respectively.

(1) (2) (3) (4) (5) (6)

CAR[-1,+1] CAR[-1,+2] CAR[-1,+5]
Contractor -0.0015** -0.0014** -0.0024*** -0.0024*** -0.0038*** -0.0040***
(0.0007) (0.0007) (0.0008) (0.0008) (0.0008) (0.0008)
Size 0.0007*** 0.0006*** 0.0004***
(0.0001) (0.0001) (0.0002)
Leverage 0.0003 -0.0001 0.001
(0.0012) (0.0013) (0.0016)
ROA 0.0089*** 0.0090*** 0.0242***
(0.0026) (0.0029) (0.0036)
12m average return -0.0290*** -0.0227** -0.0318***
(0.008) (0.0091) (0.0111)
Constant -0.0006*** -0.0081*** -0.0005** -0.0072*** -0.0003 -0.0070***
(0.0002) (0.0013) (0.0002) (0.0015) (0.0003) (0.0019)

Fixed Effects Year, Industry Year, Industry Year, Industry

Observations 50751 50232 50751 50232 50751 50232
Adj. R-squared 0.003 0.004 0.003 0.004 0.006 0.007

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Table 6. The Disciplining Effect of Government Contracts
This table presents results of regressions evaluating the disciplining effect of government contract awards for
contractors that experience an increase in E&S incidents. The regressions are at the firm level. E&S increase (t-1, t)
denotes an increase in negative E&S news between years t-1 and t. Punish is a dummy that equals one if a contractor
either experiences a contract amount cut or completely loses a contract in year t. E&S change (t, t+3) is the difference
between the number of E&S incidents in year t+3 and in year t. The dummy E&S decrease (t, t+3) equals one if E&S
change (t, t+3) is negative, and zero otherwise. The regressions in Panel A are estimated on the full sample. Panels B
and C examine subsamples of contracts by contract features. High (Low) compete firms are those for which compete
contracts are more (less) than 50% of all contracts in year t-1. Long (Short) duration firms are those with average
contract duration in year t-1 longer than 75% (shorter than 25%) of the average distribution of duration in the sample.
All specifications include year fixed effects. Standard errors, clustered by firm, are reported in parentheses. ***, **,
* indicate statistical significance at the 1%, 5%, and 10% level, respectively.

Panel A. Full sample analysis

(1) (2)
Dummy E&S
E&S change
decrease
(t, t+3)
(t, t+3)
E&S increase (t-1, t) × Punish -0.0685*** 0.0173***
(0.0163) (0.0039)
E&S increase (t-1, t) -0.2495*** 0.5150***
(0.0132) (0.0031)
Punish -0.0028 -0.001
(0.0036) (0.0009)
Constant 0.0481*** 0.0030***
(0.003) (0.0007)

Fixed Effects Year

Observations 90225 90225
Adj. R-squared 0.019 0.482

Panel B. Subsample analysis: Extent to which contracts are competed

(1) (2) (3) (4)
E&S change (t to t+3) Dummy E&S decrease (t, t+3)
High compete Low compete High compete Low compete
E&S increase (t-1, t) × Punish -0.0371*** 0.0023 0.0254*** 0.0178*
(0.014) (0.0187) (0.0069) (0.0094)

Fixed Effects Year

Observations 28754 15818 28754 15818
Adj. R-squared 0.099 0.119 0.466 0.487

Panel C. Subsample analysis: Contract duration

(1) (2) (3) (4)
E&S change (t to t+3) Dummy E&S decrease (t, t+3)
Long duration Short duration Long duration Short duration
E&S increase (t-1, t) ´ Punish -0.1651*** 0.0103 0.0325*** -0.0119
(0.0436) (0.054) (0.0103) (0.012)

Fixed Effects Year

Observations 12466 8876 12466 8876
Adj. R-squared 0.030 0.009 0.491 0.493

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Table 7. Reallocating contracts of punished firms
Panel A of this table relates the E&S records of regular contractors that lose government business – ‘punished’
contractors – and the number or log(amount) of contracts allocated at t+1 to special contractors (columns 1 and 2) and
regular contractors (columns 3 and 4) who provide the same product or service to the same federal agency. The
independent variable E&S incidents of punished contractors (t-3, t-1) measures the aggregated number of E&S
incidents of regular ‘punished’ contractors over t-3 to t-1 within the same product/service code and agency code as
the special or regular contractors whose number or log(amount) of contracts we study (dependent variables). Panel B
performs the same analysis as in Panel A but focuses only on special contracts divided into two groups based on the
length of their relationship with the government. Long (short) relationship denotes special contracts whose length of
contracting relationship with the government is above (below) the 75th-percentile (25th-percenitle) of the sample
distribution. All specifications include firm and year fixed effects. Standard errors, clustered by firm, are reported in
parentheses. ***, **, * indicate statistical significance at the 1%, 5%, and 10% level, respectively.

Panel A. Reallocated contracts: Special and regular contractors

(1) (2) (3) (4)
Special contractors Regular contractors
Number Number
contracts Log(Amount) contracts Log(Amount)
E&S incidents of punished contractors (t-3, t-1) 0.0521*** 0.0001* 0.0183*** 0.00001***
(0.0186) (0.00003) (0.0062) (0.0000)

Fixed Effects Year, Firm

Observations 34,718 34,718 376588 376588
Adj. R-squared 0.869 0.872 0.711 0.901

Panel B. Reallocated contracts: Special contracts by duration of government relationship

(1) (2) (3) (4)
Number contracts Log(Amount)
Long Short Long Short
relationship relationship relationship relationship
E&S incidents of punished contractors (t-3, t-1) 0.0079*** 0.0036 0.00003* 0.00002
(0.0027) (0.0022) (0.00002) (0.00006)

Fixed Effects Year, Firm

Observations 7627 7448 7627 7448
Adj. R-squared 0.960 0.978 0.938 0.928

32

Electronic copy available at: https://ssrn.com/abstract=4280531

Table 8. The DATA Act and the Role of Transparency
This table displays the results of regressions assessing the differential effect of a firm’s E&S incidents over t-1 to t on
contract amounts and other contracting features before and after the DATA Act. The regressions are at the contract
level. Columns 1 and 2 present results for the full sample. Columns 3 and 4 present results for Special contracts
(defined as contracts awarded to women-owned, minority-owned, or small disadvantaged businesses). All
specifications include firm and year fixed effects. Standard errors, clustered by firm, are reported in parentheses. ***,
**, * indicate statistical significance at the 1%, 5%, and 10% level, respectively.

(1) (2) (3) (4)

All contracts Special contracts
Before After Before After

A. Log(Amount)
E&S incidents (t-1, t) -0.021*** -0.029*** -0.157*** -0.745***
(0.001) (0.001) (0.021) (0.026)
Observations 1261274 4349937 93923 125452
Adj. R-squared 0.658 0.450 0.662 0.294

B. Compete
E&S incidents (t-1, t) 0.003*** 0.005*** -0.078*** 0.049***
(0.001) (0.002) (0.004) (0.005)
Observations 1120968 4490220 93612 125298
Adj. R-squared 0.447 0.687 0.401 0.389

C. Duration
E&S incidents (t-1, t) -0.693*** -0.889*** -6.127*** -28.742***
(0.104) (0.018) (1.372) (1.363)
Observations 1119879 4489173 93589 125322
Adj. R-squared 0.539 0.574 0.308 0.409

D. Cost-plus
E&S incidents (t-1, t) -0.0003*** -0.0004*** 0.0047 -0.0050***
(0.0001) (0.0001) (0.0058) (0.0015)
Observations 1120968 4490220 85172 133379
Adj. R-squared 0.538 0.490 0.494 0.324

Fixed Effects Firm, Year

33

Electronic copy available at: https://ssrn.com/abstract=4280531