Regulatory Events and Biotech Firm Share Prices

Abstract

Using the "event study" method, we measure the impact on agricultural biotechnology firm equity values of new regulations and other limitations placed on the marketing of biotech crops. Unanticipated declines to biotech firm stock prices indicate that newly imposed regulatory restrictions appear most likely to diminish profit expectations for these firms. The stock price reaction to decisions by crop handlers, processors, or retailers to segregate or limit the use of biotech crops and to reports questioning their safety are less pronounced. Incentives to engage in new biotech crop research and development may be diminished by these developments.

Impact of Automobile Regulations on Shareholders’ Wealth: Indian Empirical Evidence

“…The event study methodology has been widely used in management research 32,33 and has also been applied in the context of regulatory action. See, for example, Cable, Henley, and Holland, 34 Dohlman, Hall, and Somwaru 16 and Reynolds 35 in economic regulation; Feroz, Park, and Pastena, 36 and Kang 37 in financial regulation; and Schwert, 1981, 38 Viscusi and Herch, 17 McWilliams and Siegel, 32 and Kane 10 in public policy regulation. It is a very powerful methodology when the announcement date of the event with the information content is precisely known (Brown and Warner, 1980).…”

“…Contrary to the results of Mitchell and Mulherian [1988] 15 , he found that the ban neither did increase the value nor reduce the risk of tobacco firms. Dohlman, Hall, and Somwaru 16 found a negative impact of regulations placing restrictions on marketing of biotech crops on equity values of agriculture biotechnology firms. Viscusi and Hersch 17 in a study of 29 product liability lawsuits during the period 1970–1985 found negative shareholder returns in the event of product liability action).…”

Concentrated Announcements on Clustered Data: An Event Study on Biotechnology Stocks

“…This clarification purportedly restored the confidence of investors. The next day, Celera Genomics announced completion of the decoding of human DNA, which reinforced the positive impact of Clinton's second political statement.Our analysis of this sequence is similar to the studies that deal with events that affect companies or industries at a common date (see Angbazo andNarayanan, 1996, andDohlman, Hall, andSomwaru, 2002). However, unlike these studies, where information about a legal change is usually gradually revealed by the regulatory process and the sequence of events is not always easy to identify, our research focuses on two dimensions of a political statement and its follow-ups that we can clearly identify over a short period of time, such as in Cornett and Musumeci (1999).…”

Estimating the Market Effect of a Food Scare: The Case of Genetically Modified StarLink Corn

“…Because portfolio theory is readily applicable to stock prices, such studies often examine the impact of events on the stock prices of the companies involved, rather than estimating the direct effect on a commodity price. Examples of event studies in agriculture include Thomsen and McKenzie's (2001) study of beef recalls for E. Coli, Henson and Mazzocchi's (2002) study of BSE in the UK, and Dohlman, Hall, and Somwaru's (2002) analysis of regulation of biotech crops. As per the standard event study approach, these papers average over multiple companies that were affected by the incidents to produce a more powerful test for significance of the event.…”