Product recalls, lobbying, and firm value

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.