Abstract
Recently, increasing number of infectious diseases has swept the world. The outbreak of a contagious disease not only affects the health and lives of people but also causes economic growth to stagnate. Business in the biotechnology industry is closely related to infectious diseases but what exactly is the information value of the outbreak of infectious disease on biotechnology? This study investigates how such outbreaks can affect the performance of biotechnology stocks. In the past 10 years, major statutory infectious diseases in Taiwan have included ENTEROVIRUS 71, DENGUE FEVER, SARS and H1N1. The empirical results indicate that there is a significant abnormal return on company shares in Taiwan's biotechnology industry because of statutory infectious epidemics. The relationship between the financial ratios of biotechnology companies and abnormal returns was analyzed as part of this research. The results show that the influence on R&D ratios, current ratios and assets are significant. Empirical findings reveal that the investors rationally measure operating conditions of the biotechnology companies during outbreaks of major infectious disease and adjust portfolio allocation accordingly.
Highlights
Biotechnology in the 21st century is a very active field
In order to test the robustness of the results, the Biotechnology industry is divided into three major categories: pharmaceuticals, medical products, and other medical-related products
As shown by the results described in the previous paragraphs, infectious diseases affect stock performance both positively and negatively
Summary
Biotechnology in the 21st century is a very active field. Many countries, including Taiwan, invest heavily in biotechnology industry. Biotechnology industry is a high-tech industry and its development requires the input of a lot of capital and technology (Hall, Bagchi-Sen 2002). As early as the 1990s, the Taiwanese government had already started to formulate industrial development strategies; as a result of incentives provided, many biotechnology companies were established. Because the establishment of new companies is very important to a country’s economic health and capital markets, Taiwan’s government hopes that these newly established biotech companies will promote economic competiveness (Hsu et al 2005; Strandskov 2006). Journal of Business Economics and Management, 2013, 14(Supplement 1): S112–S127
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