DP14236 The Impact of the Opioid Crisis on Firm Value and Investment

Author(s): Paige Ouimet, Elena Simintzi, Kailei Ye
Publication Date: December 2019
Keyword(s): Firm value, opioid, Technological change
Programme Areas: Labour Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14236

High rates of opioid abuse have had a significant impact on the United States including implications for firms which must now contend with a lower pool of available and productive workers. This paper documents a negative effect of instrumented opioid prescriptions and subsequent individual employment outcomes. In turn, this impacts firms as we show a negative relationship between opioid prescriptions and subsequent firm growth. We also show that firms respond to the labor shortage by investing more in technology, substituting capital for labor to mitigate some of the costs otherwise expected due to the decline in labor supply. Moreover, we establish a causal link between opioids and firm values using the staggered passage of state laws intended to limit opioid prescriptions. Following the passage of these laws, we find a 40 basis point increase in the cumulative abnormal return of the average firm and a 70 basis point increase for firms that are less capital intensive pre-treatment and thus more dependent on labor inputs.