Wealth Effect of Drug Withdrawals on Firms and Their Competitors
29 Pages Posted: 25 Oct 2000
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Wealth Effect of Drug Withdrawals on Firms and Their Competitors
Wealth Effect of Drug Withdrawals on Firms and Their Competitors
Date Written: undated
Abstract
This paper studies the impact of drug withdrawals on shareholder wealth of producers and competitors. Results show that the wealth loss is conditional on the information content of the news of a drug withdrawal. Firms withdrawing drugs during advanced clinical investigations suffer a larger wealth loss than withdrawals during post-marketing surveillance. The wealth loss is inversely related to the market capitalization and is smaller in case multiple firms withdraw the same type of drug. Moreover, reports of adverse drug reactions that sometimes precede the eventual withdrawal of a drug lead to significant loss in shareholder wealth. Finally, shareholders of the direct competitors gain only during the five-day post-event period.
Keywords: Product recall, product withdrawal, competitors, event study
JEL Classification: G3
Suggested Citation: Suggested Citation