Examining the link between cash flow, market value, and research and development investment spending in the medical device industry

Document Type

Article

Publication Title

Health Economics (United Kingdom)

Publication Date

2-1-2013

Abstract

Unlike the pharmaceutical industry, no empirical research has focused on the factors influencing research and development (R&D) spending in the medical device industry. To fill that gap, this study examines how R&D spending is influenced by prior year cash flow and corporate market value using multiple regression analysis and a panel data set of medical device companies over the period 1962-2008. The empirical findings suggest that the elasticities of R&D spending with respect to cash flow and corporate market value equal 0.58 and 0.31, respectively. Moreover, based upon these estimates, simulations show that the recently enacted excise tax on medical devices, taken alone, will reduce R&D spending by approximately $4 billion and thereby lead to a minimum loss of $20 billion worth of human life years over the first 10 years of its enactment. Copyright © 2012 John Wiley & Sons, Ltd.

Volume

22

Issue

2

First Page

157

Last Page

167

DOI

10.1002/hec.1825

ISSN

10579230

E-ISSN

10991050

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