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Long-term value creation in the pharmaceutical sector: an event study analysis of big pharma stocks

Andrija Tomovic and Erdal Atukeren

International Journal of Sustainable Economy, 2012, vol. 4, issue 4, 370-389

Abstract: We investigate the drivers of value creation in big pharmaceutical firms. We use a unique dataset of a total of 2,200 news items on research and development (R%D) progress announcements and dividend news of 25 largest pharmaceutical companies for the period 1998-2010. Our findings affirm the role of successful R%D as a driver of value creation in the long-run. This long term view of value creation has implications for sustainability. R%D is a critical input to long-term sustainable growth and the pharmaceutical sector is one of the highest R%D-intense sectors. Furthermore, successful R%D leading to the discovery of new drugs enhances the prospects for a sustainable economy by improving the society's health status and well-being. Indeed, we find that negative R%D news destroys more long-term value than the value created by positive news. This highlights the concern for the overall long-term adverse implications of unsuccessful R%D on the economy.

Keywords: research and development; R%D progress announcements; dividend news; pharmaceutical industry; stock markets; sustainable value creation; event study; sustainable development; dividends; sustainable economy; drug discovery; long-term value. (search for similar items in EconPapers)
Date: 2012
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