The Career Effects of Scandal: Evidence from Scientific Retractions

Pierre  Azoulay; Alessandro  Bonatti; Joshua Lev Krieger

Article | Research Policy

The Career Effects of Scandal: Evidence from Scientific Retractions

by Pierre Azoulay, Alessandro Bonatti and Joshua Lev Krieger

Abstract

We investigate how the scientific community's perception of a scientist's prior work changes when one of his articles is retracted. Relative to non-retracted control authors, faculty members who experience a retraction see the citation rate to their earlier, non-retracted articles drop by 10% on average, consistent with the Bayesian intuition that the market inferred their work was mediocre all along. We then investigate whether the eminence of the retracted author and the cause of the retraction (fraud vs. mistake) shape the magnitude of the penalty. We find that eminent scientists are more harshly penalized than their less distinguished peers in the wake of a retraction, but only in cases involving fraud or misconduct. When the retraction event had its source in “honest mistakes,” we find no evidence of differential stigma between high- and low-status faculty members.

Keywords: Reputation; Perception; Status and Position; Outcome or Result;

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Citation:

Azoulay, Pierre, Alessandro Bonatti, and Joshua Lev Krieger. "The Career Effects of Scandal: Evidence from Scientific Retractions." Research Policy 46, no. 9 (November 2017).

A weather technology startup, ClimaCell considers the R&D trade-offs and financing implications of pursuing a proposed contract with a major automobile maker, rather than continuing its focus on building a scalable, all-purpose weather prediction engine.

Working Paper | HBS Working Paper Series | 2018

Find and Replace: R&D Investment Following the Erosion of Existing Products

Joshua Krieger, Xuelin Li and Richard T. Thakor

How do R&D-intensive firms react to negative shocks to their existing products? We explore this question using detailed project-level data from drug development firms. Using FDA Public Health Advisories as an exogenous and idiosyncratic negative shock to approved drugs, we examine how firms and their competitors react in terms of their R&D investment and financing decisions. We document that these negative shocks lead affected firms to increase R&D expenditures, which they finance with debt. In terms of investment behavior, these shocks increase the likelihood of affected firms acquiring drug projects from other firms, rather than developing new projects internally. Examining the channels behind this increase in R&D in-licensing, we explore heterogeneity in treatment effects and competitor spillovers. We find that competitors move resources away from affected therapeutic areas and into more exploratory projects, after indirectly experiencing these shocks. Rather than turning to external acquisitions, these competing firms appear to reshuffle their own drug portfolios—moving resources away from the affected therapeutic area and into more exploratory projects.

Keywords: R＆D Investments; drug development; product shocks; System Shocks; Research and Development; Investment; Behavior; Pharmaceutical Industry;

Citation:

Krieger, Joshua, Xuelin Li, and Richard T. Thakor. "Find and Replace: R&D Investment Following the Erosion of Existing Products." Harvard Business School Working Paper, No. 19-058, December 2018. View Details

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We analyze firms' decisions to invest in incremental and radical innovation, focusing specifically on pharmaceutical research. We develop a new measure of drug novelty that is based on the chemical similarity between new drug candidates and existing drugs. We show that drug candidates that we identify as ex-ante novel are riskier investments, in the sense that they are subsequently less likely to be approved by the FDA. However, conditional on approval, novel candidates are, on average, more valuable―they are more clinically effective; have higher patent citations; lead to more revenue and to higher stock market value. Using variation in the expansion of Medicare prescription drug coverage, we show that firms respond to a plausibly exogenous cash flow shock by developing more molecularly novel drug compounds, as opposed to more so-called "me-too" drugs. This pattern suggests that, on the margin, firms perceive novel drugs to be more valuable ex-ante investments, but that financial frictions may hinder their willingness to invest in these riskier candidates.

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The Career Effects of Scandal: Evidence from Scientific Retractions

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