Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-15T08:38:20.115Z Has data issue: false hasContentIssue false
  • English
  • Français

The Tylenol Incident, Ensuing Regulation, and Stock Prices

Published online by Cambridge University Press:  06 April 2009

Thomas D. Dowdell ,
Suresh Govindaraj  and
Prem C. Jain
Get access Rights & Permissions [Opens in a new window]

Abstract

The much publicized Tylenol incident in 1982 led to stringent packaging regulations for over-the-counter pharmaceutical drugs. The sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations. The market value of common stock of Johnson & Johnson, makers of Tylenol, declined by approximately 29 percent, amounting to $2.31 billion. Although other firms in the industry also suffered significantly, their share price decline did not occur around the Tylenol incident but occurred around the subsequent packaging regulation proceedings. On average, 28 other pharmaceutical firms analyzed in this study experienced a decline of $310 million per firm, or a total of about $8.68 billion. The results suggest that the regulation had a significant negative effect on the common stock prices of firms in the pharmaceutical industry.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 27 , Issue 2 , June 1992 , pp. 283 - 301
Copyright
Copyright © School of Business Administration, University of Washington 1992

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bowen, R. M; Castanias, R. P.; and Daley, L. A.. “Intra-Industry Effects of the Accident at Three Mile Island.” Journal of Financial and Quantitative Analysis, 18 (03 1983), 87–111.CrossRefGoogle Scholar
Brown, S., and Warner, J.. “Measuring Security Price Performance.” Journal of Financial Economics, 8 (09 1980), 205–258.Google Scholar
Brown, S., and Warner, J.. “Using Daily Stock Returns: the Case of Event Studies.” Journal of Financial Economics, 13 (03 1985), 3–32.Google Scholar
Collins, D. W., and Dent, W. T.. “A Comparison of Alternative Testing Methodologies Used in Capital Market Research.” Journal of Accounting Research, 22 (Spring 1984), 48–84.Google Scholar
Comanor, W. S. “The Political Economy of the Pharmaceutical Industry.” Journal of Economic Literature, 24 (09 1986), 1178–1217.Google Scholar
Dann, L. Y., and James, C. M.. “An Analysis of the Impact of Deposit Rate Ceilings on the Market Values of Thrift Institutions.” Journal of Finance, 46 (12 1982), 1259–1275.Google Scholar
Fama, E. F.Foundation of Finance. New York: Basic Books (1976).Google Scholar
Hill, J., and Schneeweis, T.. “The Effect of Three Mile Island on Electric Utility Stock Prices: A Note.” Journal of Finance, 47 (09 1983), 1285–1292.CrossRefGoogle Scholar
Jain, P. “The Effect of Voluntary Sell-Off Announcements on Shareholder Wealth.” Journal of Finance, 49 (03 1985), 209–224.Google Scholar
Jarrell, G., and Peltzman, S.. “The Impact of Product Recalls on the Wealth of Sellers.” Journal of Political Economy, 93 (06 1985), 512–536.CrossRefGoogle Scholar
Schwert, G. W. “Using Financial Data to Measure Effects of Regulation.” Journal of Law and Economics, 24 (04 1981), 121–158.Google Scholar
Smith, R. T; Bradley, M.; and Jarrell, G.. “Studying Firm Specific Effects of Regulation with Stock Market Data: An Application to Oil Price Regulation.” Rand Journal of Economics, 17 (Winter 1986), 467–489.Google Scholar
Spiller, P. T. “The Differential Impact of Airline Regulation on Individual Firms and Markets: An Empirical Analysis.” Journal of Law and Economics, 26 (10 1983), 655–689.Google Scholar