Information Disclosure and Peer Innovation: Evidence from Mandatory Reporting of Clinical Trials

Abstract

We document that significantly more ongoing drug projects are suspended after the passage of Food and Drug Administration Amendments Act of 2007 (FDAAA) which requires pharmaceutical firms to disclose detailed clinical study results publicly. The result has a causal interpretation based on difference-in-differences analyses that exploit different pre-FDAAA information environments. We also find supplemental evidence that fewer new projects are initiated after the FDAAA. Drug developers’ learning from peer failures is the main mechanism and is amplified by financial constraints. We also examine the consequences of enhanced information disclosure, which include changes in investment efficiency, drug quality, and disease morbidity.

Note:
Funding Information: None to declare.

Conflict of Interests: None to declare.

Keywords: New Drugs, Mandatory Information Disclosure, Information Diffusion, Divestment, Welfare Analysis

JEL Classification: I18, G30, D80, O32