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

Authors: Andrija Tomovic; Erdal Atukeren

Addresses: Novartis International AG, Novartis Campus, Forum 1, CH-4056 Basel, Switzerland. ' ETH Zurich, KOF Swiss Economic Institute, Weinbergstrasse 35, WEH D4, CH–8092 Zurich, Switzerland; SBS Swiss Business School, Balz Zimmermannstr. 34, CH-8302 Kloten, Switzerland; BSL Business School Lausanne, Rte. de la Maladiére 21, P.O. Box 73, CH-1022 Chavannes, Switzerland

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.

DOI: 10.1504/IJSE.2012.049609

International Journal of Sustainable Economy, 2012 Vol.4 No.4, pp.370 - 389

Published online: 21 Nov 2014 *

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