![Sample our Health and Social Care journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5938/TOC-Subject-Sample-2021-Health-Social-Care.jpg"})
ABSTRACT
Background: Our work is motivated by prior evidence of significant negative wealth effects reported by Jambulingam and Sharma, based on the Food and Drug Administration (FDA) 2 April 2009, warning letters to 14 major pharmaceutical companies pertaining to search engine advertising, in an effort to stop one critical dimension of internet marketing by pharmaceutical industry. Consequently, we expect the overall market for branded drugs to shrink. This shrinkage in future will affect market for generics, in turn, negatively impacting future cash flows of generic firms – a contagion effect.
Materials and methods: We test contagion effect by measuring changes in shareholders’ wealth of a select sample of large generic firms around regulatory event. Using standard event-study methodology, we investigate whether this contagion wealth effect, due to internet advertising restrictions on pharmaceutical firms, do carry over to generic firms since they do not advertise themselves.
Results: Our results show a significant and negative wealth effect (contagion) for shareholders of generic firms on event day 0. We also report this shareholder wealth loss, in dollar terms, to be of 783 million, on Event day 0 (when FDA posts the letter).
Conclusion: This study privides empirical evidence that shows that internet marketing has significant impact on both branded and generic industry. Our findings carry implications for policy makers and regulators as further regulations are considered.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes on contributors
Dr. WaQar Ghani is Associate Professor in the Department of Accounting at St. Joseph’s University, Erivan K. Haub School of Business, in Philadelphia, Pennsylvania, USA. Currently he teaches both in the Executive and part-time MBA programs. Dr. Ghani has a multidisciplinary research focus. His work has been published in some of the premier journals in finance (Journal of Fixed Income), marketing (Journal of Public Policy and Marketing), and accounting (International Journal of Accounting). His research interests include the impact of regulations on shareholder wealth, international trade agreements and shareholder wealth, stock and bond markets and firm value, corporate governance, business groups, firm performance, and external financial reporting in emerging economies, and Economic Value Added (EVA)© and firm performance.
Dr. Thani Jambulingam is Professor in the Department of Pharmaceutical Marketing at St. Joseph’s University, Erivan K. Haub School of Business, in Philadelphia, Pennsylvania, USA. Currently he teaches both Executive Pharmaceutical MBA program and undergraduate program in Pharmaceutical Marketing. Thani worked in the pharmaceutical industry for several years before he returned to school and completed his Ph.D. at University of Wisconsin, Madison, USA. Dr. Jambulingam’s research interests are in pharmaceutical strategy, supply chain and pricing. His work has been published in several marketing, management and pharmaceutical and healthcare journals. He has also served as a consultant to several major pharmaceutical firms.
Dr. Rajneesh Sharma is Professor of Finance at Saint Joseph’s University. He obtained his PhD from Baruch College, The City University of New York. He also holds FRM (Financial Risk Manager) designation. His teaches both at the undergraduate and graduate programs. His research interests include Capital Markets and International Financial Markets. He has published several papers in refereed academic journals, practitioner magazines, and conferences.
Notes
1 An analysis of firm-specific news releases is available with the authors.