Abstract
We study how the announcement by CVS Health, a large US-based pharmacy chain, to stop selling tobacco products affected its share price and that of its close competitors, as well as major tobacco companies. Combining event study and synthetic control methodologies we compare measures of CVS's stock market valuation with those of a peer group consisting of large publicly listed firms that are part of Standard & Poor's S&P 500 stock market index. CVS's announcement is associated with a short-term decrease in its share price, whereas close competitors have benefitted from CVS' decision. We also find a negative share price effect for Altria, the largest US domestic tobacco firm. Overall our findings are consistent with markets expecting consumers to shift from CVS to alternative outlets in the short-run, and interpreting CVS' decision to drop tobacco products as signal that other firms may follow suit.
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