FDA approval announcements: Attention-grabbing or event-day misspecification?

1.             Purpose This paper investigates the impact of determining the exact timing of the market’s reaction to FDA approval announcements and explores whether the attention-grabbing hypothesis provides an... [ view full abstract ]

1.             Purpose

This paper investigates the impact of determining the exact timing of the market’s reaction to FDA approval announcements and explores whether the attention-grabbing hypothesis provides an explanation for post-event abnormal returns reported.

2.         Methodology 

We conduct an event study methodology over a 43-day event window for a sample of 233 drug approval decisions issued to NYSE listed pharmaceutical firms between 2009 and 2015.

3.       Findings 

We show that when event-day mis-specification is accounted for the market reaction is centred on the event-day and that the increase in firm value is driven by after-market-close approval announcements.

4.         Value 

The attention-grabbing hypothesis has been offered as a behavioral explanation for post-event abnormal returns for FDA drug approval announcements for NYSE listed firms. We support event-day misspecification as an alternative explanation. Increase in firm value is driven by after-market-close approval announcements.

5.       Keywords

Research and development; FDA; Attention-grabbing; Pharmaceuticals; Event study.