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Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry

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  • Rossitza B. Wooster
  • Craig A. Gallet

Abstract

This article uses daily data on stock returns of five U.S. publicly traded cigarette producers to document the wealth effects of antismoking policies initiated in the period 1964 to 1971. The authors find significant abnormal returns across 23 dates corresponding to important regulatory events. The second‐stage estimation shows that wealth effects are also influenced by firm characteristics, such as market share, advertising intensity, percentage of sales of filter‐tip cigarettes, percentage of advertising expenditures devoted to TV and radio, and tobacco leaf inventories. Overall, the article estimates that industry losses from antismoking policies amounted to approximately $1.5 billion. (JEL L66, G14, I18)

Suggested Citation

  • Rossitza B. Wooster & Craig A. Gallet, 2005. "Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry," Contemporary Economic Policy, Western Economic Association International, vol. 23(2), pages 211-223, April.
    • Handle: RePEc:bla:coecpo:v:23:y:2005:i:2:p:211-223
    DOI: 10.1093/cep/byi016
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    Cited by:

    1. Shilpi Bihari & Barry Seldon, 2006. "The Effect of Government Advertising Policies on the Market Power of Cigarette Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(3), pages 201-229, May.

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    More about this item

    JEL classification:

    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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