Valuation implications of pharmaceutical companies' R&D regulatory approval notifications

Philip A. Hamill, Philip McIlkenny and Kwaku K. Opong

The British Accounting Review, 2013, vol. 45, issue 2, 99-111

Abstract: This paper examines shareholder wealth effects surrounding applications to, and approvals by, the United States Food and Drug Administration (FDA) for firms listed on the New York (NYSE) and London (LSE) stock exchanges. Applications to the FDA for drug approvals significantly increase shareholder wealth for NYSE firms only. The increase is driven by applications for enhancements to existing drugs, with the market anticipating the application, thus suggesting information leakage. FDA approvals also significantly increase shareholder wealth in both markets. However, there is no evidence of information leakage and the significant post-event abnormal returns support the attention-grabbing hypothesis. Enhanced drug approvals are value-relevant for both markets, which highlights the contribution of real-options to firm value.

Keywords: Event study; Food and drug administration (FDA); London stock exchange (LSE); New York stock exchange (NYSE); Pharmaceutical firms; Real-options; Research & development (R&D) (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:45:y:2013:i:2:p:99-111

DOI: 10.1016/j.bar.2013.03.004

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