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Information Disclosure and Peer Innovation: Evidence from Mandatory Reporting of Clinical Trials

Published online by Cambridge University Press:  03 January 2025

Po-Hsuan Hsu Open the ORCID record for Po-Hsuan Hsu [Opens in a new window] ,
Kyungran Lee ,
S. Katie Moon Open the ORCID record for S. Katie Moon [Opens in a new window]  and
Seungjoon Oh
Po-Hsuan Hsu
Affiliation:
National Tsing Hua University College of Technology Management pohsuanhsu@mx.nthu.edu.tw
Kyungran Lee
Affiliation:
NEOMA Business School kyungran.lee@neoma-bs.fr
S. Katie Moon
Affiliation:
University of Colorado Leeds School of Business katie.moon@colorado.edu
Seungjoon Oh*
Affiliation:
Peking University HSBC Business School
*
sjoonoh@phbs.pku.edu.cn (corresponding author)
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Abstract

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We document significant increases in the suspension of ongoing drug projects following the passage of the Food and Drug Administration Amendments Act of 2007 (FDAAA), which mandates that pharmaceutical companies publicly disclose detailed clinical study results. Our results suggest a causal interpretation through difference-in-differences analyses that exploit variations in pre-FDAAA information environments. We also show evidence that fewer new projects are initiated after the FDAAA. Drug developers’ learning from peer failures is the primary mechanism, further amplified by financial constraints. We also examine the consequences of enhanced information disclosure, including changes in firm investment efficiency, drug quality, and disease morbidity.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 44
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful for the helpful comments from Philip Bond, Yao-Ming Chiang, Ran Duchin (the editor), Lora Dimitrova (NFA discussant), Liran Einav, Luminita Enache (FARS discussant), Jarrad Harford, Christopher Hrdlicka, Joshua Krieger (AIEA-NBER discussant), Yao Lu, Song Ma (AFA discussant), Christopher Parsons, Ivan Png, Ariel Stern, Lea Stern, Richard Thakor (MFA discussant), Joy Tong (EFA discussant), Ayung Tseng (AAA discussant), Chi-Yang Tsou, Lucy Wang, Yanzhi Wang, Moqi Xu, Alminas Zaldokas, and Minyuan Zhao, as well as conference participants of the 2019 Hong Kong Junior Accounting Faculty Conference, 2019 NFA meeting, Taiwan Symposium on Innovation Economics and Entrepreneurship, 2020 FARS meeting, the 2020 AIEA-NBER conference, 2020 MFA meeting, 2020 AAA meeting, 2021 EFA meeting, 2022 AFA meeting, and seminar participants at U.S. Food and Drug Administration (FDA), National Taiwan University, Peking University HSBC Business School, Korea University, KAIST, the University of Colorado Boulder, the University of Washington – Seattle, Tsinghua University, and Yonsei University. All errors are our own.

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