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.

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