The Tylenol Incident, Ensuing Regulation, and Stock Prices

Dowdell, Thomas D.; Govindaraj, Suresh; Jain, Prem C.

doi:10.2307/2331372

Cited by 99 publications

(43 citation statements)

References 13 publications

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“…13 First, our measure of change in market capitalization calculates the absolute dollar value for rewards to product introduction using abnormal returns. Thus, we follow other researchers who have also attempted to compare across many firms the gains (or losses) that accrue from an important event (Dowdell, Govindaraj, and Jain 1992;Hendricks and Singhal 1997;Sorescu, Chandy, and Prabhu 2003). Although some empirical work using the event study method employs percentage abnormal returns as the measure of interest, such work is typically concerned with whether an event results in abnormal returns and not with comparing the absolute gains that accrue across several firms.…”

Section: Appendix A: Measuring Change In Market Capitalizationmentioning

confidence: 99%

“…Our dependent variable calculates the absolute dollar value for rewards to product introduction using abnormal returns. In doing so, we follow other researchers who have also compared across many firms the gains (or losses) that accrue to the firm from an important event (Dowdell, Govindaraj, and Jain 1992;Hendricks and Singhal 1997;Sorescu, Chandy, and Prabhu 2003).…”

Section: Dependent Variable: Rewards To Product Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The Fruits of Legitimacy:Why Some New Ventures Gain More from Innovation Than Others

Rao¹,

Chandy²,

Prabhu³

2008

Journal of Marketing

138

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This article examines rewards to product introduction by new ventures. The authors argue that the new ventures that gain the most from innovation are those that adopt strategies that give them legitimacy in the eyes of stakeholders. New ventures can gain legitimacy by creating associations with established entities; such associations can be internal or external to the firm. The authors test these ideas by examining the stock market gains of all products introduced between 1982 and 2002 by all public firms in the U.S. biotechnology industry. The results show that new ventures that acquire legitimacy externally by forming alliances with established firms gain more from their new products than new ventures that do not form such alliances. Among new ventures that do not form alliances, those that acquire legitimacy internally by creating a history of product launches or by hiring reputed executives or scientists gain more from their new products than those that do not. In relative terms, it pays more to have introduced a new drug before than to have a reputed executive on the firm's board; in turn, adding a reputed executive pays more than adding a reputed scientist to the firm's board. Finally, although new ventures can gain from either external or internal legitimacy, pursuit of external legitimacy by firms that already have internal legitimacy leads to lower rewards to innovation.

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Section: Appendix A: Measuring Change In Market Capitalizationmentioning

confidence: 99%

Section: Dependent Variable: Rewards To Product Introductionmentioning

confidence: 99%

The Fruits of Legitimacy:Why Some New Ventures Gain More from Innovation Than Others

Rao¹,

Chandy²,

Prabhu³

2008

Journal of Marketing

138

View full text Add to dashboard Cite

show abstract

“…Ahmed, Gardella and Nanda (2002) find that competitors' share prices rose significantly five days after the announcements of drug withdrawals that occurred between 1966. Dowdell, Govindaraj, and Jain (1992 find that in the wake of the Tylenol poisonings, the share prices of rival pharmaceutical manufacturers rose relative to the share price of the manufacturer of…”

Section: Conceptual Frameworkmentioning

confidence: 99%

“…Moreover, the related literature implies divergent predictions. Studies of short-run changes in the stock prices of rival firms following drug withdrawals have found evidence of both positive and negative effects (Jarrell and Peltzman 1985;Dowdell et al 1992;Ahmed et al 2002).…”

Section: Introductionmentioning

confidence: 99%

The Competitive Effects of Drug Withdrawals

Cawley

Rizzo

2005

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In September 1997, the anti-obesity drugs Pondimin and Redux, ingredients in the popular drug combination fen-phen, were withdrawn from the market for causing potentially fatal side effects.That event provides an opportunity for studying how consumers respond to drug withdrawals. In theory, remaining drugs in the therapeutic class could enjoy competitive benefits, or suffer negative spillovers, from the withdrawal of a competing drug. Our findings suggest that, while the withdrawal of a rival drug may impose negative spillovers in the form of higher patient quit rates, on the whole non-withdrawn drugs in the same therapeutic class enjoy competitive benefits in the form of higher utilization.

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“…Jarrell and Peltzman (1985) show that these recalls have a disproportionately large impact on the stock price of the pharmaceutical company, compared to the direct costs associated with the recall. Dowdell, Govindaraj, and Jain (1992) focus on the Tylenol incident, and show that a single FDA packaging regulation resulted in a total of $11 billion in capitalization losses across the pharma companies affected, much more than the direct costs associated with the newly introduced regulation.…”

Section: Introductionmentioning

confidence: 99%