Regulatory Threats and Political Vulnerability

Posted: 11 Apr 2000

Abstract

During the 1992 U.S. presidential campaign and immediately after, the pharmaceutical industry was subjected to regulatory threats. It was charged with high drug costs, high advertising expense, and insufficient expenditure on research and development to develop better drugs. We examine whether firms' measures of political vulnerability (higher advertising expense and lower R&D expenditure) influence the equity value effects of the regulatory threats. We find negative announcement effects around three regulatory threats. We then extend the analysis and find evidence consistent with our hypotheses that measures of political vulnerability are associated with more negative abnormal returns in response to the regulatory threats.

JEL Classification: L51, L65

Suggested Citation

Bowman, Robert G. and Navissi, Farshid and Burgess, Richard C., Regulatory Threats and Political Vulnerability. Journal of Financial Research, Available at SSRN: https://ssrn.com/abstract=191554

Robert G. Bowman

Independent

Farshid Navissi (Contact Author)

Monash University ( email )

Building H, Caulfield Campus
Melbourne, Victoria 3142 Vic 3145
Australia
+61 405 664941 (Phone)

Richard C. Burgess

University of Tulsa ( email )

600 South College
Tulsa, OK 74104
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
763
PlumX Metrics