The Assessment of Impact of Conducting The Act for The Development of Biotech and New Pharmaceuticals Industry
Date Issued
2008
Date
2008
Author(s)
Chen, Fu-Jen
Abstract
With the aim of putting Taiwan on the map with advanced biotechnology and rejuvenating the nation''s economy, our government announced The Biotech and New Pharmaceutical Development Act on July 4, 2007. The rules for the Act indicates that companies which engage in research, development, and manufacturing of New Drugs and High-risk Medical Devices used by human beings, animals and plants would enjoy extremely favorable tax breaks and rent control policies, which could foster growth in the time-and-money-consuming industry.This study uses event study method to examine the stock market reactions towards the announcement of The Biotech and New Pharmaceutical Development Act and uses a regression model to explore the relations between abnormal stock returns and firm characteristics. In addition, problems encountered within the industry are revealed in the study and some comments and suggestions on the regulation are made. The empirical research demonstrates that the stock market reacted positively to the announcement of The Biotech and New Pharmaceutical Development Act, suggesting that the policy is regarded as an effective measure to foster growth of the local biotech and pharmaceutical industry. Moreover, the results of the regression model shows: (i) Companies with higher R&D density ratios tends to have greater abnormal stock returns. (ii) Companies with more patents seem to have greater abnormal stock returns during the period of the event, but not statistically significant. (iii) Finally, companies with greater growth ratios in operating profit and higher foreign capital appear to have less abnormal stock returns which is against the hypothesis.
Subjects
Biotech
New Pharmaceuticals
Event Study
Abnormal Returns
Taxation Incentive
Taxation Policy
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