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- Finance Department

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- Finance Department ( 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

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