IDEAS home Printed from https://ideas.repec.org/a/fma/fmanag/ahmed02.html
   My bibliography  Save this article

Wealth Effect of Drug Withdrawals on Firms and Their Competitors

Author

Listed:
  • Parvez Ahmed
  • John Gardella
  • Sudhir Nanda

Abstract

In this paper, we examine the impact of a drug withdrawal on shareholders of firms and their direct competitors. We find shareholders suffer significant wealth losses when there are reports of adverse drug reactions and when the firm actually withdraws a drug from the market. Additionally, shareholder wealth losses are inversely related to the firm’s market capitalization. Firms that withdraw drugs during advanced clinical investigations experience greater wealth loss than drugs withdrawn during post-marketing surveillance. Wealth losses are lower if many firms withdraw the same type of drug and if that drug has available substitutes.

Suggested Citation

  • Parvez Ahmed & John Gardella & Sudhir Nanda, 2002. "Wealth Effect of Drug Withdrawals on Firms and Their Competitors," Financial Management, Financial Management Association, vol. 31(3), Fall.
    • Handle: RePEc:fma:fmanag:ahmed02
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Miller, Kathleen L. & Nardinelli, Clark & Pink, George & Reiter, Kristin, 2018. "The signaling effects of incremental information: Evidence from stacked US Food and Drug Administration designations," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 219-226.
    2. Gokhale, Jayendra & Brooks, Raymond M. & Tremblay, Victor J., 2014. "The effect on stockholder wealth of product recalls and government action: The case of Toyota's accelerator pedal recall," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 521-528.
    3. Eng Cheah & Wen Chan & Corinne Chieng, 2007. "The Corporate Social Responsibility of Pharmaceutical Product Recalls: An Empirical Examination of U.S. and U.K. Markets," Journal of Business Ethics, Springer, vol. 76(4), pages 427-449, December.
    4. Astvansh, Vivek & Eshghi, Kamran, 2023. "The effects of regulatory investigation, supplier defect, and product age on stock investors’ reaction to an automobile recall," Journal of Business Research, Elsevier, vol. 167(C).
    5. Fang, Xiang & Wang, Xiaoyu & Shao, Yingying & Banerjee, Pramit, 2024. "Examining the effect of a firm’s product recall on financial values of its competitors," Journal of Business Research, Elsevier, vol. 176(C).
    6. Berkman, Henk & Eugster, Marco, 2017. "Short on drugs: Short selling during the drug development process," Journal of Financial Markets, Elsevier, vol. 33(C), pages 102-123.
    7. Shao‐Chi Chang & Heng‐Yu Chang, 2015. "Corporate Motivations of Product Recall Strategy: Exploring the Role of Corporate Social Responsibility in Stakeholder Engagement," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 22(6), pages 393-407, November.
    8. Jianping Qi & Ninon K. Sutton & Qiancheng Zheng, 0. "The value of innovation and the spillover effect on alliance partners," Review of Quantitative Finance and Accounting, Springer, vol. 0, pages 1-31.
    9. Joshua L. Krieger, 2021. "Trials and Terminations: Learning from Competitors’ R&D Failures," Management Science, INFORMS, vol. 67(9), pages 5525-5548, September.
    10. Golec, Joseph & Gupta, Neeraj J., 2014. "Do investments in intangible customer assets affect firm value?," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 513-520.
    11. Diestre, Luis, 2018. "Safety crises and R&D outsourcing alliances: Which governance mode minimizes negative spillovers?," Research Policy, Elsevier, vol. 47(10), pages 1904-1917.
    12. Luis Diestre & Benjamin Barber & Juan Santaló, 2020. "The Friday Effect: Firm Lobbying, the Timing of Drug Safety Alerts, and Drug Side Effects," Management Science, INFORMS, vol. 66(8), pages 3677-3698, August.
    13. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
    14. Zhang, Shafu & Magnan, Michel & Qiu, Yetaotao & Zeng, Cheng Colin, 2022. "Do banks price production process failures? Evidence from product recalls," Journal of Banking & Finance, Elsevier, vol. 135(C).
    15. Jorge V. P鲥z-Rodr z & Beatriz G. L. Valcarcel, 2012. "Do product innovation and news about the R&D process produce large price changes and overreaction? The case of pharmaceutical stock prices," Applied Economics, Taylor & Francis Journals, vol. 44(17), pages 2217-2229, June.
    16. Saim Kashmiri & Vijay Mahajan, 2014. "A Rose by Any Other Name: Are Family Firms Named After Their Founding Families Rewarded More for Their New Product Introductions?," Journal of Business Ethics, Springer, vol. 124(1), pages 81-99, September.
    17. Annapoornima M. Subramanian & Moren Lévesque & Vareska van de Vrande, 2020. "“Pulling the Plug:” Time Allocation between Drug Discovery and Development Projects," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2851-2876, December.
    18. Oded, Sharon, 2011. "Inducing corporate compliance: A compound corporate liability regime," International Review of Law and Economics, Elsevier, vol. 31(4), pages 272-283.
    19. Michael A. Wiles & Shailendra P. Jain & Saurabh Mishra & Charles Lindsey, 2010. "Stock Market Response to Regulatory Reports of Deceptive Advertising: The Moderating Effect of Omission Bias and Firm Reputation," Marketing Science, INFORMS, vol. 29(5), pages 828-845, 09-10.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fma:fmanag:ahmed02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Courtney Connors (email available below). General contact details of provider: https://edirc.repec.org/data/fmaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.