Valuation Implications Of Pharmaceutical Companies’ Drug Approval Announcements In A-share Stock Market

Drug development is characterized by intensive R&D investment,long R&D cycle and high return.Because of this,information asymmetry between investors and pharmaceutical listed companies is relatively severe.Foreign researchers have proved that drug examination and approval announcements are important signals to reflect firm value of listed companies.In this paper,we examined the wealth effect of 116 drug approval announcements and 30 drug rejection announcements in A-share stock market.The results show that A-share stock market reacts positively to drug approval announcements and negatively to rejection announcements while the market responses between positive and negative announcements are asymmetric.Evidences of information leakage were found in both approval and rejection announcements.We also examined the influence factor of the abnormal returns around drug approval announcements.The results from regression show that companies with smaller firm value,higher abnormal turnover and drugs in leading therapeutic indications will have higher abnormal returns to drug approval announcements.Those results enrich the research of correlation between drug examination and approval and firm value in A-share stock market and are also helpful for stock market investors to develop investment strategies,listed pharmaceutical companies to determine R&D strategy and securities regulatory authorities to improve the regulatory framework.