The Economics of Corporate Governance and Mergers
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The Economics of Corporate Governance and Mergers

Edited by Klaus Gugler and B. Burcin Yurtoglu

This book provides an insightful view of major issues in the economics of corporate governance (CG) and mergers. It presents a systematic update on the developments in the two fields during the last decade, as well as highlighting the neglected topics in CG research, such as the role of boards, CG and public interest and the relation of CG to mergers. Two important conclusions can be drawn from this book: the first is that corporate governance systems that better align shareholders’ and managers’ interests lead to better corporate performance; second, there is an important relationship between CG structures and the quality of firm decision-making, one of the most important being the decision to merge or take over another firm.
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Chapter 11: Mergers and Alliances in Pharmaceuticals: Effects on Innovation and R & D Productivity

Henry Grabowski and Margaret Kyle


11. Mergers and alliances in pharmaceuticals: effects on innovation and R&D productivity Henry Grabowski and Margaret Kyle I INTRODUCTION The pharmaceutical industry provides a good laboratory to investigate the effects of mergers and alliances on innovation and R&D productivity. Over the past few decades, the industry has been characterized both by significant consolidation of large pharma firms as well as the vertical disintegration of the R&D process. The latter is associated with significant entry into the discovery and development process by early stage biopharmaceutical firms. Since the early 1990s, an evolving marketplace for new technologies through licensing agreements and joint ventures has emerged, accompanied by the growth of contract research organizations that specialize in implementing clinical trials for new drug candidates. To put some of these changes in historical perspective, it is useful to chronicle some of the key dynamic forces affecting the pharmaceutical industry since the early 1980s. While the 1980s were a period of rising prices and profits for the industry, many challenging developments also occurred for the vertically integrated, multinational drug industry. These developments included rising R&D costs (DiMasi et al., 1991; 2003), the expiration of patents on major commercial products, and the beginning of intensive price competition from generics. The passage of the Waxman–Hatch Act in 1984 was a key legislative change that allowed generics to enter the market by demonstrating bioequivalence (that is without the need to do clinical tests of safety and e...

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