Network of audiences: FDA review time and innovation in the pharmaceutical industry, 1990--2004

Institutional actors such as security analysts, critics, and regulators exert great influence on firms through their evaluations and allocation of attention. In this dissertation, I study an institutional actor---the US Food and Drug Administration (FDA)---that exerts great power over firms by the timing of its evaluation of their products. Despite the significance of its task, the FDA faces many challenges in evaluating new drugs due to the unobservable nature of quality. Furthermore, conflicting demands from the agency's multiple audiences amplify legitimacy concerns compounding the uncertainty inherent in its task.; Using review times for New Drug Applications submitted to the FDA between 1990 and 2004, I examine issues of firm status, innovation, and legitimacy crises in three empirical studies. The first study finds that the inherent uncertainty involved in reviewing drugs leads the FDA to rely on status positions of firms in the knowledge domain to determine the pace of review. Firms with high status received faster approval for the drugs they sponsor, but evidence suggests that this is not driven by firm expertise or quality, but by broader identity and political reputation concerns. The second study examines how the institutional actor punishes or rewards different types of innovative efforts. I find that firms were penalized by the institutional actor when they ventured into unknown technology areas or domains that fail to match their existing competencies. Furthermore, this punishment was moderated by the sponsoring firm's status. The third empirical study looks at how the FDA adjusted its review behavior to market-wide product withdrawals that create legitimacy crises. While the evidence for the agency penalizing firms guilty of a recall was inconclusive, I found strong evidence that the field as a whole was punished in the form of slower reviews when a product withdrawal threatens the legitimacy of the agency.; In the final chapter I summarize the arguments and discuss the strategic implications of my empirical findings. I conclude the dissertation by proposing a model of the institutional actor's behavior as a source of status-quality decoupling that integrates the themes of the dissertation.