209 / 2024-04-23 11:15:34

A Policy Paradox: The Impact of China's National Drug Centralized Procurement on Firm Performance

Centralized procurement policy,group purchasing,regulation shift,pharmaceutical firms,healthcare management

The implementation of China’s national drug centralized procurement policy aims to control drug price and increase social welfare. However, operational risks such as profits reduction and market confidence decrease emerge for Chinese pharmaceutical firms. Based on combined data from the China Stock Market and Accounting Research (CSMAR) database and the Cninfo, we employ event study methods to analyze the impact of policy transition on financial performance of 205 Chinese pharmaceutical firms in the stock market. The results show that the drug centralized procurement policy implementation generates a significant negative impact on firm values in pharmaceutical industry. Moreover, the response of the market value to regulatory adjustments varies based on the individual characteristics of the firms involved. Notably, firms exhibiting higher innovation intensity and greater sales intensity tend to experience a more pronounced and detrimental impact during this regulatory event. In contrast, firms with a higher level of supply chain concentration and product internationalization appear to be less affected by regulatory changes. Our findings shed light on both policymakers and managers within the pharmaceutical industry. Policymakers focused on reducing drug prices, should also consider the effects on the financial health of pharmaceutical firms, as well as the potential impacts on new drug development and innovation within the industry. On the other hand, managers of pharmaceutical companies need to recognize the significance of building trust-based cooperative relationships with major suppliers and customers. By diversifying markets across various regions and countries, pharmaceutical firms can improve their resilience and adaptability to domestic policy changes.