EXAMINING THE LINK BETWEEN CASH FLOW, MARKET VALUE, AND RESEARCH AND DEVELOPMENT INVESTMENT SPENDING IN THE MEDICAL DEVICE INDUSTRY
Article first published online: 2 JAN 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Volume 22, Issue 2, pages 157–167, February 2013
How to Cite
Schmutz, B. P. and Santerre, R. E. (2013), EXAMINING THE LINK BETWEEN CASH FLOW, MARKET VALUE, AND RESEARCH AND DEVELOPMENT INVESTMENT SPENDING IN THE MEDICAL DEVICE INDUSTRY. Health Econ., 22: 157–167. doi: 10.1002/hec.1825
- Issue published online: 9 JAN 2013
- Article first published online: 2 JAN 2012
- Manuscript Accepted: 11 NOV 2011
- Manuscript Revised: 7 OCT 2011
- Manuscript Received: 24 DEC 2010
- medical devices;
- research and development
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.