The Tylenol Incident, Ensuing Regulation, and Stock Prices

Thomas D. Dowdell, Suresh Govindaraj and Prem C. Jain

Journal of Financial and Quantitative Analysis, 1992, vol. 27, issue 2, 283-301

Abstract: The much publicized Tylenol incident in 1982 led to stringent packaging regulations for over-the-counter pharmaceutical drugs. The sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations. The market value of common stock of Johnson & Johnson, makers of Tylenol, declined by approximately 29 percent, amounting to $2.31 billion. Although other firms in the industry also suffered significantly, their share price decline did not occur around the Tylenol incident but occurred around the subsequent packaging regulation proceedings. On average, 28 other pharmaceutical firms analyzed in this study experienced a decline of $310 million per firm, or a total of about $8.68 billion. The results suggest that the regulation had a significant negative effect on the common stock prices of firms in the pharmaceutical industry.

Date: 1992
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