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Competition and R&D Financing: Evidence From the Biopharmaceutical Industry

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  • Thakor, Richard T.
  • Lo, Andrew W.

Abstract

The interaction between product market competition, R&D investment, and the financing choices of R&D-intensive firms on the development of innovative products is only partially understood. We hypothesize that as competition increases, R&D-intensive firms will: i) increase R&D investment relative to existing assets in place; ii) carry more cash; and iii) maintain less net debt. Using the Hatch–Waxman Act as an exogenous shock to competition, we provide causal evidence supporting these hypotheses through a differences-in-differences analysis that exploits differences between the biopharma industry and other industries, and heterogeneity within the biopharma industry. We also explore how these changes affect innovative output.

Suggested Citation

  • Thakor, Richard T. & Lo, Andrew W., 2022. "Competition and R&D Financing: Evidence From the Biopharmaceutical Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(5), pages 1885-1928, August.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:5:p:1885-1928_8
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