Impact of H1N1, H7N9, ASFV, dengue virus and COVID-19 on pharmaceutical manufacturing firms' R&D investments and economic consequences: Evidence from China

Objective:To determine the impact of major disease epidemics on pharmaceutical manufacturing firms'Research&Development(R&D)investments and economic consequences.Methods:The sample consists of 1582 firm-year observations from 2009 to 2022 in China,of which,26.6%of pharmaceutical companies are involved in the diagnosis and treatment of prevalent diseases.Linear models using R&D investments,patent applications,operating performances and stock returns as dependent variables are constructed separately to examine the response of pharmaceutical companies to disease epidemics and the resulting economic consequences.Results:The prevalence of five major diseases led to a 17.5%increase in the amount of R&D investment and an 87.8%rise in the ratio of R&D investment to total assets by disease-related pharmaceutical companies,compared to unrelated pharmaceutical companies.Further evidence indicated that the patent applications for disease-related firms increased by 44.3%relative to unrelated firms after the epidemics.Though the impacts of the epidemics on firms’operating performances were insignificant in the short term,a major disease epidemic was associated with an increase in stock returns of 67.4%and 44.6%,respectively,as measured by the capital asset pricing model and Fama-French five-factor model.Additional analysis revealed that the impacts of the epidemics on R&D investments and patent applications were more pronounced for non-state-owned enterprises than state-owned enterprises.Conclusions:This study demonstrates that disease-related pharmaceutical firms respond to the disease epidemics through increasing R&D investment.More patent applications and higher market value are the main gains from the firms’increased investments in R&D following the epidemic,rather than the improvements of short-term operating performances.