RESEARCH PAPER

Impacts of the Master Settlement Agreement on the tobacco industry

F A Sloan¹, C A Mathews², J G Trogdon³

¹ Center for Health Policy, Law & Management, Duke University, Durham, North Carolina, USA
² C F X Media
³ School of Economics, University of Adelaide, Adelaide, Australia

Correspondence to:
Correspondence to:
Professor Frank A Sloan PhD
Box 90253, Center for Health Policy, Law & Management, Duke University, Durham, NC 27708, USA; fsloan{at}hpolicy.duke.edu

Objective: To assess effects of the Master Settlement Agreement (MSA) and the four individual state settlements on tobacco company decisions and performance.

Design: 10-K reports filed with the US Securities and Exchange Commission, firm and daily data from the Center for Research in Security Prices, stock price indices, market share and advertising data, cigarette export and domestic consumption data, and newspaper articles were used to assess changes before (1990–98) and after (1999–2002) the MSA was implemented.

Subjects: Five major tobacco manufacturers in the USA.

Main outcome measures: Stockholder returns, operating performance of defendant companies, exports, market share of the original participants in the MSA, and advertising/promotion expenditures.

Results: Returns to investments in the tobacco industry exceeded returns from investments in securities of other companies, using each of four indexes as comparators. Domestic tobacco revenues increased during 1999–2002 from pre-MSA levels. Profits from domestic sales rose from levels prevailing immediately before the MSA. There is no indication that the MSA caused an increase in tobacco exports. Total market share of the original participating manufacturers in the MSA decreased. Total advertising expenditures by the tobacco companies increased at a higher rate than the 1990–98 trend during 1999–2002, but total advertising expenditures net of spending on coupons and promotions decreased.

Conclusion: The experience during the post-MSA period demonstrates that the MSA did no major harm to the companies. Some features of the MSA appear to have increased company value and profitability.

Abbreviations: CPI, Consumer Price Index, CRSP, Center for Research in Security Prices; MSA, Master Settlement Agreement; NPMs, non-participating manufacturers; OPMs, original participating manufacturers; SEC, Securities and Exchange Commission; SIC, Standard Industrial Classification; SPM, subsequent participating manufacturer

Keywords: litigation; Master Settlement Agreement; tobacco manufacturers

CiteULike    Complore    Connotea    Del.icio.us    Digg    Reddit    Technorati    What's this?

This article has been cited by other articles:

• Primack, B. A., Fine, D., Yang, C. K., Wickett, D., Zickmund, S. (2009). Adolescents' impressions of antismoking media literacy education: qualitative results from a randomized controlled trial. Health Educ Res 24: 608-621 [Abstract] [Full Text]  
• Lavack, A. M, Toth, G. (2006). Tobacco point-of-purchase promotion: examining tobacco industry documents.. Tobacco Control 15: 377-384 [Abstract] [Full Text]  
• Sloan, F. A., Allsbrook, J. S., Madre, L. K., Masselink, L. E., Mathews, C. A. (2005). States' Allocations Of Funds From The Tobacco Master Settlement Agreement. Health Aff (Millwood) 24: 220-227 [Abstract] [Full Text]