Financing decisions following negative shocks in the product market: A matrix-completion study of the U.S. pharmaceutical industry

Francesco Biancalani, Giorgio Gnecco, Andrea Signori and Silvio Vismara

Economics Letters, 2024, vol. 243, issue C

Abstract: We investigate whether firms adjust their financing policies in response to a negative shock affecting their product market. Focusing on the pharmaceutical industry, we leverage the U.S. Inflation Reduction Act (IRA) of 2022 as an exogenous shock, marking the government's inaugural authority to negotiate drug prices. Using a matrix completion approach, a supervised machine-learning methodology that allows to compare treatment outcomes against predicted counterfactual values in absence of the treatment, our analysis reveals that pharmaceutical firms react to this regulatory intervention by issuing more equity. This finding suggests that firms raise fresh capital to mitigate the adverse impact of IRA on the product market.

Keywords: Regulatory intervention; Capital raising; Pharmaceutical; Synthetic control method; Matrix completion; Inflation Reduction Act (search for similar items in EconPapers)
JEL-codes: G32 G38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524004208

DOI: 10.1016/j.econlet.2024.111936

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