Articlegreen2002

Wealth Effect of Drug Withdrawals on Firms and Their Competitors

Parvez Ahmed · Marco Gardella · Sudhir Nanda

64 citations0/0 files storedFinancial Management

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

This paper studies the impact of drug withdrawals on shareholder wealth of producers and competitors. Results show that the wealth loss is conditional on the information content of the news of a drug withdrawal. Firms withdrawing drugs during advanced clinical investigations suffer a larger wealth loss than withdrawals during post-marketing surveillance. The wealth loss is inversely related to the market capitalization and is smaller in case multiple firms withdraw the same type of drug. Moreover, reports of adverse drug reactions that sometimes precede the eventual withdrawal of a drug lead to significant loss in shareholder wealth. Finally, shareholders of the direct competitors gain only during the five-day post-event period.

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References

1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 1981The Role of Market Forces in Assuring Contractual Performance 1983On corporate governance 1992Contagion and competitive intra-industry effects of bankruptcy announcements 1985The Impact of Product Recalls on the Wealth of Sellers 1996The reputational penalty firms bear from committing criminal fraud 1993The "Dartboard" Column: Second-Hand Information and Price Pressure 1998The Shareholder Wealth Implications of Corporate Lawsuits

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