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

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") Copyright 2005 Western Economic Association International.