Hostname: page-component-6766d58669-76mfw Total loading time: 0 Render date: 2026-05-20T14:25:52.037Z Has data issue: false hasContentIssue false
  • English
  • Français

Information Disclosure and Peer Innovation: Evidence from Mandatory Reporting of Clinical Trials

Published online by Cambridge University Press:  03 January 2025

Po-Hsuan Hsu Open the ORCID record for Po-Hsuan Hsu [Opens in a new window] ,
Kyungran Lee ,
S. Katie Moon Open the ORCID record for S. Katie Moon [Opens in a new window]  and
Seungjoon Oh
Po-Hsuan Hsu
Affiliation:
National Tsing Hua University College of Technology Management pohsuanhsu@mx.nthu.edu.tw
Kyungran Lee
Affiliation:
NEOMA Business School kyungran.lee@neoma-bs.fr
S. Katie Moon
Affiliation:
University of Colorado Leeds School of Business katie.moon@colorado.edu
Seungjoon Oh*
Affiliation:
Peking University HSBC Business School
*
sjoonoh@phbs.pku.edu.cn (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

We document significant increases in the suspension of ongoing drug projects following the passage of the Food and Drug Administration Amendments Act of 2007 (FDAAA), which mandates that pharmaceutical companies publicly disclose detailed clinical study results. Our results suggest a causal interpretation through difference-in-differences analyses that exploit variations in pre-FDAAA information environments. We also show evidence that fewer new projects are initiated after the FDAAA. Drug developers’ learning from peer failures is the primary mechanism, further amplified by financial constraints. We also examine the consequences of enhanced information disclosure, including changes in firm investment efficiency, drug quality, and disease morbidity.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 7 , November 2025 , pp. 3267 - 3310
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful for the helpful comments from Philip Bond, Yao-Ming Chiang, Ran Duchin (the editor), Lora Dimitrova (NFA discussant), Liran Einav, Luminita Enache (FARS discussant), Jarrad Harford, Christopher Hrdlicka, Joshua Krieger (AIEA-NBER discussant), Yao Lu, Song Ma (AFA discussant), Christopher Parsons, Ivan Png, Ariel Stern, Lea Stern, Richard Thakor (MFA discussant), Joy Tong (EFA discussant), Ayung Tseng (AAA discussant), Chi-Yang Tsou, Lucy Wang, Yanzhi Wang, Moqi Xu, Alminas Zaldokas, and Minyuan Zhao, as well as conference participants of the 2019 Hong Kong Junior Accounting Faculty Conference, 2019 NFA meeting, Taiwan Symposium on Innovation Economics and Entrepreneurship, 2020 FARS meeting, the 2020 AIEA-NBER conference, 2020 MFA meeting, 2020 AAA meeting, 2021 EFA meeting, 2022 AFA meeting, and seminar participants at U.S. Food and Drug Administration (FDA), National Taiwan University, Peking University HSBC Business School, Korea University, KAIST, the University of Colorado Boulder, the University of Washington – Seattle, Tsinghua University, and Yonsei University. All errors are our own.

References

Aghamolla, C., and Thakor, R. T.. “Do Mandatory Disclosure Requirements for Private Firms Increase the Propensity of Going Public?” Working Paper, University of Minnesota (2019).CrossRefGoogle Scholar
Aghamolla, C., and Thakor, R. T.. “IPO Peer Effects.” Journal of Financial Economics, 144 (2022), 206–226.CrossRefGoogle Scholar
Anton, J. J., and Yao, D. A.. “Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights.” American Economic Review, 84 (1994), 190–209.Google Scholar
Anton, J. J., and Yao, D. A.. “Little Patents and Big Secrets: Managing Intellectual Property.” RAND Journal of Economics, 35 (2004), 1–22.CrossRefGoogle Scholar
Arellano, M., Hahn, J.. Understanding Bias in Nonlinear Panel Models: Some Recent Developments. Cambridge, MA: Cambridge University Press (2013).Google Scholar
Badertscher, B.; Shroff, N.; and White, H. D.. “Externalities of Public Firm Presence: Evidence from Private Firms’ Investment Decisions.” Journal of Financial Economics, 109 (2013), 682–706.CrossRefGoogle Scholar
Bernard, D.; Blackburne, T.; and Thornock, J.. “Information Flows Among Rivals and Corporate Investment.” Journal of Financial Economics, 136 (2020), 760–779.CrossRefGoogle Scholar
Bhattacharya, S., and Ritter, J. R.. “Innovation and Communication: Signalling with Partial Disclosure.” Review of Economic Studies, 50 (1983), 331–346.CrossRefGoogle Scholar
Bolton, P.; Wang, N.; and Yang, J.. “Investment Under Uncertainty and the Value of Real and Financial Flexibility.” NBER Working Paper No. 20610 (2014).CrossRefGoogle Scholar
Bolton, P.; Wang, N.; and Yang, J.. “Investment Under Uncertainty with Financial Constraints.” Journal of Economic Theory, 184 (2019), 104912.CrossRefGoogle Scholar
Budish, E.; Roin, B. N.; and Williams, H.. “Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials.” American Economic Review, 105 (2015), 2044–2085.CrossRefGoogle ScholarPubMed
Bustamante, M. C., and Frésard, L.. “Does Firm Investment Respond to Peers’ Investment?” Management Science, 67 (2021), 4703–4724.CrossRefGoogle Scholar
Capkun, V.; Lou, Y.; and Wang, Y.. “Do Firms Respond to Peer Disclosures? Evidence from Disclosures of Clinical Results.” Working Paper, HEC Paris (2019).CrossRefGoogle Scholar
Chen, Q.; Goldstein, I.; and Jiang, W.. “Price Informativeness and Investment Sensitivity to Stock Price.” Review of Financial Studies, 20 (2007), 619–650.CrossRefGoogle Scholar
Congressional Budget Office. “Research and Development in the Pharmaceutical Industry.” https://www.cbo.gov/publication/57025 (2021).Google Scholar
DeAngelis, C. D.; Drazen, J. M.; Frizelle, F. A.; Haug, C.; Hoey, J.; Horton, R.; Kotzin, S.; Laine, C.; Marusic, A.; Overbeke, A. J. P.; et al. “Clinical Trial Registration: A Statement from the International Committee of Medical Journal Editors ." Archives of Dermatology, 141 (2005a), 76–77.Google Scholar
DeAngelis, C. D.; Drazen, J. M.; Frizelle, F. A.; Haug, C.; Hoey, J.; Horton, R.; Kotzin, S.; Laine, C.; Marusic, A.; Overbeke, A. J. P.; et al. “Is This Clinical Trial Fully Registered?: A Statement from the International Committee of Medical Journal Editors.” JAMA, 293 (2005b), 2927–2929.CrossRefGoogle Scholar
Dos Santos, D. H. M., and Atallah, A. N.. “FDAAA Legislation is Working, but Methodological Flaws Undermine the Reliability of Clinical Trials: A Cross-Sectional Study.” PeerJ, 3 (2015), e1015.CrossRefGoogle Scholar
Eisfeldt, A. L., and Rampini, A. A.. “Capital Reallocation and Liquidity.” Journal of Monetary Economics, 53 (2006), 369–399.CrossRefGoogle Scholar
Erickson, T.; Jiang, C. H.; and Whited, T. M.. “Minimum Distance Estimation of the Errors-in-Variables Model Using Linear Cumulant Equations.” Journal of Econometrics, 183 (2014), 211–221.CrossRefGoogle Scholar
Fassbender, M. “Transparency on Trial: How to Navigate FDAAA 801 Final Rule Implementation and Compliance.” Outsourcing-Pharma.com (2018).Google Scholar
Ferreira, D.; Manso, G.; and Silva, A. C.. “Incentives to Innovate and the Decision to Go Public or Private.” Review of Financial Studies, 27 (2014), 256–300.CrossRefGoogle Scholar
Fetter, T. R.; Steck, A. L.; Timmins, C.; And Wrenn, D.. “Learning by Viewing? Social Learning, Regulatory Disclosure, and Firm Productivity in Shale Gas.” NBER Working Paper No. 25401 (2018).CrossRefGoogle Scholar
Foucault, T., and Fresard, L.. “Learning from Peers’ Stock Prices and Corporate Investment.” Journal of Financial Economics, 111 (2014), 554–577.CrossRefGoogle Scholar
Furman, J. L.; Nagler, M.; and Watzinger, M.. “Disclosure and Subsequent Innovation: Evidence from the Patent Depository Library Program.” NBER Working Paper No. 24660 (2018).CrossRefGoogle Scholar
García-Meca, E.; Parra, I.; Larrán, M.; and Martínez, I.. “The Explanatory Factors of Intellectual Capital Disclosure to Financial Analysts.” European Accounting Review, 14 (2005), 63–94.CrossRefGoogle Scholar
Garfinkel, J. A.; Hammoudeh, M.; Irlbeck, S.; and Lie, E.. “Competition and Executive Compensation: Evidence from Pharmaceutical Breakthrough Designations.” Working Paper, University of Iowa (2022).CrossRefGoogle Scholar
Gill, C. J. “How Often Do US-Based Human Subjects Research Studies Register on Time, and How Often Do They Post Their Results? A Statistical Analysis of the Clinicaltrials. gov Database.” BMJ Open, 2 (2012), e001186.CrossRefGoogle Scholar
Gill, D. “Strategic Disclosure of Intermediate Research Results.” Journal of Economics & Management Strategy, 17 (2008), 733–758.Google Scholar
Guo, R.-j.; Lev, B.; and Zhou, N.. “Competitive Costs of Disclosure by Biotech IPOs.” Journal of Accounting Research, 42 (2004), 319–355.CrossRefGoogle Scholar
Hadlock, C. J., and Pierce, J. R.. “New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index.” Review of Financial Studies, 23 (2010), 1909–1940.CrossRefGoogle Scholar
Hall, B. H., and Lerner, J.. “The Financing of R&D and Innovation.” In Handbook of the Economics of Innovation, Vol 1, Hall, B. H. and Rosenberg, N., eds. Amsterdam, Netherlands: North-Holland, 1 (2010), 609–639.Google Scholar
Hao, M.; Forgione, D. A.; Guo, L.; and Zhang, H.. “Improvement in Clinical Trial Disclosures and Analysts’ Forecast Accuracy: Evidence from the Pharmaceutical Industry.” Review of Quantitative Finance and Accounting, 49 (2017), 785–810.CrossRefGoogle Scholar
Hawkes, N. “FDA Disagrees with BMJ Study That Found Clinical Trials Were Not Being Reported.” BMJ 344 (2012).CrossRefGoogle ScholarPubMed
Hegde, D.; Herkenhoff, K.; and Zhu, C.. “Patent Publication and innovation.” Journal of Political Economy, 131 (2023), 1845–1903.CrossRefGoogle Scholar
Hegde, D., and Luo, H.. “Patent Publication and the Market for Ideas.” Management Science, 64 (2018), 652–672.CrossRefGoogle Scholar
Hingorani, A. D.; Kuan, V.; Finan, C.; Kruger, F. A.; Gaulton, A.; Chopade, S.; Sofat, R.; MacAllister, R. J.; Overington, J. P.; Hemingway, H.; et al. “Improving the Odds of Drug Development Success Through Human Genomics: Modelling Study.” Scientific Reports – Nature, 9 (2019), 1–25.Google ScholarPubMed
Hoberg, G., and Maksimovic, V.. “Redefining Financial Constraints: A Text-Based Analysis.” Review of Financial Studies, 28 (2015), 1312–1352.CrossRefGoogle Scholar
James, S. D. “Strategic R&D Disclosure and Competition.” Working Paper, Ohio State University (2011).Google Scholar
Kaplan, S. N., and Zingales, L.. “Do Investment–Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?” Quarterly Journal of Economics, 112 (1997), 169–215.CrossRefGoogle Scholar
Kim, J., and Valentine, K.. “The Innovation Consequences of Mandatory Patent Disclosures.” Journal of Accounting and Economics, 71 (2021), 101381.CrossRefGoogle Scholar
Krieger, J. L. “Trials and Terminations: Learning from Competitors’ R&D Failures.” Management Science 67 (2021), 5525–5548.CrossRefGoogle Scholar
Krieger, J. L.; Li, D.; and Papanikolaou, D.. “Missing Novelty in Drug Development.” Review of Financial Studies 35 (2022a), 636–679.CrossRefGoogle Scholar
Krieger, J. L.; Li, X.; and Thakor, R. T.. “Find and Replace: R&D Investment Following the Erosion of Existing Products.” Management Science, 68 (2022b), 6552–6571.CrossRefGoogle Scholar
Lassman, S. M.; Shopshear, O. M.; Jazic, I.; Ulrich, J.; and Francer, J.. “Clinical Trial Transparency: A Reassessment of Industry Compliance with Clinical Trial Registration and Reporting Requirements in the United States.” BMJ Open, 7 (2017), e015110.CrossRefGoogle ScholarPubMed
Leary, M. T., and Roberts, M. R.. “Do Peer Firms Affect Corporate Financial Policy?” Journal of Finance, 69 (2014), 139–178.CrossRefGoogle Scholar
Leland, H. E., and Pyle, D. H.. “Informational Asymmetries, Financial Structure, and Financial Intermediation.” Journal of Finance, 32 (1977), 371–387.CrossRefGoogle Scholar
Liu, Z., and Winegar, A.. “Economic Magnitudes Within Reason.” Working Paper, University of Houston (2023).Google Scholar
Lo, A. W., and Thakor, R. T.. “Financing Biomedical Innovation.” Annual Review of Financial Economics, 14 (2022), 231–270.CrossRefGoogle Scholar
Mace, C. “The Real Effects of Equity Markets on Innovation.” Journal of Financial and Quantitative Analysis, 58 (2022), 1–53.Google Scholar
Miller, J. E.; Korn, D.; and Ross, J. S.. “Clinical Trial Registration, Reporting, Publication and FDAAA Compliance: A Cross-Sectional Analysis and Ranking of New Drugs Approved by the FDA in 2012.” BMJ Open, 5 (2015), e009758.CrossRefGoogle ScholarPubMed
Oostrom, T. “Funding of clinical trials and reported drug efficacy.” Journal of Political Economy, 132 (2024), 3298–3333.CrossRefGoogle Scholar
Peters, R. H., and Taylor, L. A.. “Intangible Capital and the Investment-Q Relation.” Journal of Financial Economics, 123 (2017), 251–272.CrossRefGoogle Scholar
Prayle, A. P.; Hurley, M. N.; and Smyth, A. R.. “Compliance with Mandatory Reporting of Clinical Trial Results on ClinicalTrials.gov: Cross Sectional Study.” BMJ, 344 (2012).CrossRefGoogle ScholarPubMed
Rambachan, A., and Roth, J.. “A More Credible Approach to Parallel Trends.” Review of Economic Studies, 90 (2023), 2555–2591.CrossRefGoogle Scholar
Scotchmer, S., and Green, J.. “Novelty and Disclosure in Patent Law.” RAND Journal of Economics, 21 (1990), 131–146.CrossRefGoogle Scholar
Thakor, R. T., and Lo, A. W.. “Competition and R&D Financing: Evidence from the Biopharmaceutical Industry.” Journal of Financial and Quantitative Analysis, 57 (2022), 1885–1928.CrossRefGoogle Scholar
Tse, T.; Williams, R. J.; and Zarin, D. A.. “Update on Registration of Clinical Trials in ClinicalTrials.gov.” Chest, 136 (2009), 304–305.CrossRefGoogle ScholarPubMed
Tse, T., and Zarin, D. A.. “Clinical Trial Registration and Results Reporting.” Update (2009).Google Scholar
Whited, T. M., and Wu, G.. “Financial Constraints Risk.” Review of Financial Studies, 19 (2006), 531–559.CrossRefGoogle Scholar
Williams, H. L. “Intellectual Property Rights and Innovation: Evidence from the Human Genome.” Journal of Political Economy, 121 (2013), 1–27.CrossRefGoogle Scholar
Wooldridge, J. M. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press (2010).Google Scholar
Zarin, D. A.; Tse, T.; Williams, R. J.; and Carr, S.. “Trial Reporting in ClinicalTrials.gov—The Final Rule.” New England Journal of Medicine, 375 (2016), 1998–2004.CrossRefGoogle Scholar
Supplementary material: File

Hsu et al. supplementary material

Hsu et al. supplementary material
Download Hsu et al. supplementary material(File)
File 171.3 KB