@techreport{NBERw11229,
 title = "Pharmaceutical Stock Price Reactions to Price Constraint Threats and Firm-Level R&D Spending",
 author = "Joseph Golec and Shantaram Hegde and John A. Vernon",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "11229",
 year = "2005",
 month = "March",
 URL = "http://www.nber.org/papers/w11229",
 abstract = {Political pressure in the United States is again building to constrain pharmaceutical prices either directly or through legalized reimportation of lower-priced pharmaceuticals from foreign countries. This study uses the Clinton Administration's Health Security Act (HSA) of 1993 as a natural experiment to show how threats of price constraints affect firm-level R&D spending. We link events surrounding the HSA to pharmaceutical company stock price changes and then examine the cross-sectional relation between the stock price changes and subsequent unexpected R&D spending changes. Results show that the HSA had significant negative effects on firm stock prices and R&D spending. Conservatively, the HSA reduced R&D spending by $1.6 billion, even though it never became law. If the HSA had passed, and had many small firms not raised capital just prior to the HSA, the R&D effects could have been much larger.},
}