Who Controls the Defence Industry?

Defence markets exhibit asset specificity and bilateral monopoly with governments as sole customer. Transaction cost economics predicts state ownership or control in such circumstances. We examine what governments actually do. Ownership alone does not determine control. A state with zero equity can have influence through governance provisions and legal tools. Using large language model extraction from annual reports, we compile a dataset on corporate governance and state control for the largest 112 defence companies by revenue in 24 countries. We construct a novel State Influence Index aggregating voting power, voting enhancements, board appointment, and veto rights. State ownership is bimodal: full state ownership at one end, no state ownership at the other. Formal control varies independently. China and Russia combine full ownership with full control. The United States has no ownership and little formal control, relying instead on security agreements, revenue dependence, and personnel interchange. The rest of the distribution is dispersed. Some countries combine minority equity with legal devices that amplify formal control well beyond ownership stakes. Others rely on regulatory mechanisms with little or no formal governance authority. In several cases, states have delegated control to domestic families operating under implicit state leverage. Corporate governance mechanisms matter most when defence entities operate beyond the home state's jurisdiction, where regulatory authority alone does not reach. A complementary State Restraint Index shows that European companies with high state influence also score highly on voluntary self-limitation, consistent with credible commitment to attract private capital. Cross-border cooperation is producing new governance architectures that partition operations across national subsidiaries to reconcile economies of scale with sovereign control. The observed patterns are consistent with basic predictions of transaction cost economics and property rights theory: higher asset specificity and bilateral dependence are associated with stronger state control, though the institutional form varies with legal tradition and political economy.