Pharmaceutical regulation in Europe and its impact on corporate R&D
نویسندگان
چکیده
OBJECTIVES Many European countries regulate the markets for prescription drugs in order to cope with rising health expenditures. On the other hand, regulation distorts incentives to invest in pharmaceutical R&D. This study aims at empirically assessing the impact of regulation on pharmaceutical R&D expenditures. METHODS We analyze a sample of 20 leading pharmaceutical companies between 2000 and 2008. The share of sales in Europe serves as a proxy for the degree of pharmaceutical regulation. We control for other firm specific determinants of R&D such as cash flow, company size, leverage ratio, growth rate, and Tobin's q. RESULTS Our results suggest a nonlinear relationship between European sales ratio and R&D intensity. Beyond a threshold of 33% of sales generated in Europe, a higher presence in Europe is associated with lower R&D investments. CONCLUSION The results can be interpreted as further evidence of the deteriorating effect of regulation on firm's incentives to invest in R&D.
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