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

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.