TY  - JOUR
AU  - Golec,Joseph
AU  - Hegde,Shantaram
AU  - Vernon,John A.
TI  - Pharmaceutical Stock Price Reactions to Price Constraint Threats and Firm-Level R&D Spending
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11229
PY  - 2005
Y2  - March 2005
UR  - http://www.nber.org/papers/w11229
L1  - http://www.nber.org/papers/w11229.pdf
N1  - Author contact info:
Joseph Golec
Department of Finance
2100 Hillside Road
Storrs, CT 06269
E-Mail: Joseph.Golec@business.uconn.edu

John Vernon
University of North Carolina at Chapel Hill
Department of Health Policy & Management
1101C McGavran-Greenberg Hall
Chapel Hill, NC 27599-7411
Tel: 919/966-8930
E-Mail: no email available
AB  - 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.
ER  -