The three essays focus on important facets of R&D such as the impact of competition, regulation and the difficulties in measuring R&D and the dollars to be allocated to R&D by a firm. In the first essay, we investigate Aghion etal. (2005), model on the relationship between R&D and competition. We identify limitations in previous empirical tests of the model. Further, R&D appropriability plays no role in the model although literature assigns it a significant role. Our comprehensive tests reveal that the model does not fully explain the R&D-competition relationship, and the results depend on the competition measure used. We investigate the role R&D appropriability and confirm its significance. Hence the model needs refinements. This study enhances our knowledge of the role competition and R&D appropriability play in enhancing R&D and helps formulate policies that promote R&D.
In the second essay, we analyze the changes in pharmaceutical firms' stock prices following the recall of Vioxx, Merck's blockbuster drug, apropos three theories based on government regulation, product liability, and firms' reputations. We conduct an event study of estimated abnormal share returns using a Fama-French 3 factor model under seemingly unrelated regression (SUR) estimation. Our investigations support government regulation theory and suggest that R&D-intensive firms suffer maximum adverse returns. Adverse returns reflect anticipated regulatory changes in approvals for new drugs. Drug recall harms the industry and future availability of new drugs. Stable and fair drug approvals policy can help the industry flourish.
The third essay critically examines measurement of R&D. R&D capital and cited patents are used in the literature to measure R&D intensity and investigate market returns for R&D. The results are ambiguous. Previous literature suggests that patents are distinct from R&D expenditure, and R&D is influenced by competition. We suggest eight new measures based on the interplay between R&D and competition. We empirically test these measures on pharmaceutical and computer software industries which have the highest R&D intensities of all industries. The new measures are more significant than R&D capital and offer further insights on R&D in these industries. These measures help in capital allocation for R&D at firm level which maximizes stock returns.
|Commitee:||Golec, Joseph, Plesco, George|
|School:||University of Connecticut|
|School Location:||United States -- Connecticut|
|Source:||DAI-A 74/09(E), Dissertation Abstracts International|
|Keywords:||Capital allocation, Competition, Firm valuation, R and D capital, Regulation|
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