Wealth Effect of Drug Withdrawals on Firms and Their Competitors

29 Pages Posted: 25 Oct 2000

See all articles by Parvez Ahmed

Parvez Ahmed

University of North Florida - Coggin College of Business

John Gardella, M.D.

Presbyterian Hospital, Matthews

Sudhir Nanda

T. Rowe Price Associates

Multiple version iconThere are 2 versions of this paper

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

Ahmed, Parvez and Gardella, John and Nanda, Sudhir, Wealth Effect of Drug Withdrawals on Firms and Their Competitors (undated). Available at SSRN: https://ssrn.com/abstract=243523 or http://dx.doi.org/10.2139/ssrn.243523

Parvez Ahmed (Contact Author)

University of North Florida - Coggin College of Business ( email )

4567 St. Johns Bluff Road, South
Jacksonville, FL 32224-2645
United States

John Gardella

Presbyterian Hospital, Matthews

1500 Matthews Township Parkway
Matthews, NC 28105
United States

Sudhir Nanda

T. Rowe Price Associates ( email )

100 East Pratt Street
Baltimore, MD 21202
United States

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