“The Real Effects of Clinical Trial Disclosures” by Dr. Vedran Capkun
We examine the impact of disclosure related to drugs development on information asymmetry between the firm and its investors and customers. Using the adoption of the Food and Drugs Administration Amendments Act (FDAAA) of 2007 that requires additional disclosures regarding clinical trials, we document a reduction in information asymmetry for firms affected by this regulation relative to various groups of unaffected firms. We find a decrease in bid-ask spread, and an increase in the number of drug and medical devices recalls for affected firms after FDAAA regulation change, consistent with reduction in asymmetry of information leading to increased scrutiny from both academics and practitioners. Finally, we find that the increase in recalls after FDAAA enactment was more prominent in firms with a higher bid-ask spread decrease. Taken together, our results show some benefits of the FDA regulation change for both investors and consumers.