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Product recalls, lobbying, and firm value

Blake Rayfield (Scott College of Business, Indiana State University, Terre Haute, Indiana, USA)
Omer Unsal (Girard School of Business, Merrimack College, North Andover, Massachusetts, USA)

Management Decision

ISSN: 0025-1747

Article publication date: 11 September 2018

Issue publication date: 26 February 2019

590

Abstract

Purpose

The purpose of this paper is to use a unique, hand-collected data set of Food and Drug Administration (FDA)-approved products to understand the effect of lobbying on the product market. The authors gather total 86,462 FDA labels including drug patents, drugs, pre-market approvals and medical devices and test the relationship between lobbying and future firms’ product submissions.

Design/methodology/approach

Using a sample of 86,462 FDA labels including drug patents, drugs, pre-market approvals and medical devices, the authors test the effect of lobbying on a firm’s future product submissions using survival analysis, logit, difference-in-differences and propensity score matching techniques.

Findings

The authors find lobbying firms experience an increase in the number of medical products approved. However, increased number of FDA labeling comes at the cost of product failure. The authors document that lobbying increases product recalls when responsible firms are associated with higher market withdrawals.

Originality/value

This study contributes to both the management literature on corporate lobbying and product recalls. Additionally, the study reveals the connection between pharmaceutical lobbying and firm value.

Keywords

Citation

Rayfield, B. and Unsal, O. (2019), "Product recalls, lobbying, and firm value", Management Decision, Vol. 57 No. 3, pp. 724-740. https://doi.org/10.1108/MD-06-2017-0581

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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