Competition and R&D Financing: Evidence From the Biopharmaceutical Industry

Richard T. Thakor, Andrew W. Lo

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


The interaction between product market competition, R&D investment, and the financing choices of R&D-intensive firms on the development of innovative products is only partially understood. We hypothesize that as competition increases, R&D-intensive firms will: i) increase R&D investment relative to existing assets in place; ii) carry more cash; and iii) maintain less net debt. Using the Hatch-Waxman Act as an exogenous shock to competition, we provide causal evidence supporting these hypotheses through a differences-in-differences analysis that exploits differences between the biopharma industry and other industries, and heterogeneity within the biopharma industry. We also explore how these changes affect innovative output.

Original languageEnglish (US)
Pages (from-to)1885-1928
Number of pages44
JournalJournal of Financial and Quantitative Analysis
Issue number5
StatePublished - Apr 26 2021

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© The Author(s), 2021.


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