Efficiency and its determinants in pharmaceutical industries: ownership, R&D and scale economy

Abstract

The purpose of this article is to measure the efficiency of pharmaceutical firms and identify their determinants using Korean and American samples from 1992 to 2004. We document some stylized facts in the patterns and sources of efficiency change in Korean and American pharmaceutical firms. The evidence shows that ownership structure can substantially influence the efficiency of pharmaceutical firms. Especially, institutional ownership rate affects corporate efficiencies negatively, corroborating the myopic institutional investor hypothesis. The hypothesis is supported by both Korean and American samples. However, we find evidence that foreign ownership in Korea promotes efficiency of pharmaceutical firms. It is shown that R&D intensity is positively related to contemporaneous largest ownership rate and prior foreign ownership rate in Korean pharmaceutical firms. In contrast, little evidence is found on the relationship between ownership structure and R&D intensity in the American pharmaceutical industry. These empirical results are robust even after we check the causal links among efficiency, R&D and ownership.

Moderating Effect of the Continental Factor on the Business Strategy and M&A Performance in the Pharmaceutical Industry for Sustainable International Business

“…Since the mid-90s, mergers and acquisitions (M&A) in the pharmaceutical industry have been used as a way to transform multinational corporations into large companies with economies of scale and substantial synergies by combining the characteristics and strengths of each company in order to secure business sustainability in the international market [1][2][3][4][5][6]. The expansion has been primarily in the US, Europe, and Japan [7][8][9][10][11].…”

Do Institutional Investors Aleviate Agency Costs in R&D Investment Decisions?

“…On the other hand, there is evidence that institutional investors are not effective monitors of R&D investment. (You, Chen, & Holder, 2010) demonstrate that institutional investors have no effect on R&D levels in American pharmaceutical firms. (Lee, 2012) finds no evidence that institutional owners have an effect on R&D investment in Korean manufacturing firms.…”

Relationship between R&D Efforts and Firm Value in the Pharmaceutical Industry

“…Thomsen and Pedersen (2000) said that different types of owners may also indicate different attitudes toward R&D investment strategy. You, Chenb, and Holder (2010) invoked Drucker (1986) who revisited the argument that type of ownership can influence the firm's R&D investment. Yoon and Kim (2008) investigated the impact of ownership structure on the value-relevance of R&D investment in KOSDAQ firms and found the equity ratio of foreign investors to be positively associated with the value-relevance of R&D investment.…”

“…A strong family ownership may promote firm efficiency for two reasons. First, as indicated by Shleifer and Vishny (1997), strong ownership gives the family owners a particular incentive to monitor the managers, thereby reducing agency costs (You, Chenb, and Holder 2010). Second, as emphasized by Pollack (1985), attributes of family business can promote operational flexibility, ease decision-making, and reduce shirking, all of which may have favorable effects on the efficiency of the firm.…”