Medical reform, Covid-19 vaccine and stock returns: the case of Chinese listed pharmaceutical and healthcare companies

ABSTRACT

This article analyses the stock returns of Chinese pharmaceutical and healthcare companies in response to the announcements of medical reform and Covid-19 vaccines, which are underexplored in the literature. Medical reform in China removes all drug markups of public hospitals; we find that the announcement of medical reform might not negatively impact the overall stock returns but only negatively impact young firms and small firms. Meanwhile, Covid-19 vaccines are deemed to be important weapons against the virus; we find that the announcements of Covid-19 vaccine approvals positively impacted the overall stock returns but did not benefit young firms and small firms. Our results imply that investors of the pharmaceutical and healthcare industries generally favour old firms and large firms when important medical news emerges.

KEYWORDS:

• Medical reform
• Covid-19 vaccine
• Stock market

JEL CLASSIFICATION:

• G14
• I18

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ http://www.nhc.gov.cn/wjw/jiany/202102/6374250dd9b04205822b8a1d82a26394.shtml(inChinese, last accessed November 2022).

² http://www.gov.cn/xinwen/2017-04/12/content_5185170.htm (in Chinese, last accessed November 2022).

³ The news of SinoPharm (Beijing) being conditionally approved by China was out one day after its clinical trial data was revealed. The impact of such an event is hard to evaluate.

⁴ Also, see Narayan (2021) for a detailed survey.

⁵ Factors are based on the $2\times 2$ sorts described in Fama and French (2015). Factors that are based on other sorts give similar results.

⁶ Companies under special treatment are excluded.

⁷ The 254 companies in Panel B are not exactly the same as the 254 companies in Panel C; in particular, each panel has three unique firms.

Additional information

Funding

This work is supported by the Think Tank Project of the Liaoning Provincial Education Department [grant number LZK201902], the Social Science Planning Project of Liaoning Social Science Fund [grant number L22BJY002], and the National Social Science Fund of China [grant number 21VGQ027].