Pharmaceutical R&D Spending and Threats of Price Regulation

46 Pages Posted: 18 Mar 2008

See all articles by Joseph H. Golec

Joseph H. Golec

University of Connecticut - Department of Finance

Shantaram P. Hegde

University of Connecticut - School of Business

John A. Vernon

University of North Carolina (UNC) at Chapel Hill; National Bureau of Economic Research (NBER)

Date Written: March 16, 2008

Abstract

Do threats of pharmaceutical price regulation affect subsequent R&D spending? This study uses the Clinton Administration's Health Security Act (HSA) of 1993 as a natural experiment to study this issue. We link events surrounding the HSA to pharmaceutical stock price changes and then examine the cross-sectional relation between firms' stock price changes and their subsequent unexpected R&D spending changes. Results show that the HSA had significant negative effects on stock prices and firm-level R&D spending. Conservatively, the HSA reduced R&D spending by about $1 billion, even though it never became law.

Keywords: Research and Development, Pharmaceuticals, Price Controls

JEL Classification: O3, G38

Suggested Citation

Golec, Joseph and Hegde, Shantaram P. and Vernon, John A., Pharmaceutical R&D Spending and Threats of Price Regulation (March 16, 2008). Available at SSRN: https://ssrn.com/abstract=1106963 or http://dx.doi.org/10.2139/ssrn.1106963

Joseph Golec (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Shantaram P. Hegde

University of Connecticut - School of Business ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5135 (Phone)

John A. Vernon

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
277
rank
104,959
Abstract Views
1,533
PlumX Metrics