Abstract

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.