Value Relevance of R&D Advances in the US Biotechnology Industry

Abstract

We investigate the value relevance of non-financial information in the US biotechnology industry by studying the stock market reactions to announcements of drug development outcomes for a sample period of 10 years (from January 2010 to December 2019). We find that the market reacts strongly to these announcements and that the magnitude of the market reaction differs between announcements made in different phases of the drug development process as well as between positive and negative announcements. Consistent with our theoretical predictions, we find that the market reacts more strongly to late-stage announcements than to early-stage announcements and more strongly to negative announcements than to positive announcements.