Reputation Spillovers and Regulatory Decision-making: The Effect of Entrepreneur's Reputation on Drug Approval in China

Drug approval is perceived as one of the core areas of bureaucratic reputation management (Carpenter 2002; Carpenter 2004). This study focuses on how regulators recognize drug approvals as a critical reputational protection measure. Drug approval approaches might be changed due to different types of reputation threats. For example, agencies might speed up or delay drug approvals due to the pressure from drug manufacturers, drug sponsors, disease organizations, and media (Carpenter 2002), or due to the concerns about drugs’ safety, efficacy, and benefit-to-harm ratio (Son & Park, 2022). Central studies on drug approvals indicated that drugs’ characters, drug firms, patients, interest group and media are all critical factors in regulatory decision-making. However, few studies on regulatory decisions have bridged personal reputation with the bureaucratic reputation management theory. In other words, whether one’s reputation will affect regulatory decision-making? We refer to this phenomenon as personal reputation spillover. According to the findings of organizational reputation spillover (Maor, Sulitzeanu‐Kenan, and Balmas 2023), we proposed the hypothesis that personal reputation spillover occurs when an individual's reputation influences the decision-making of a particular governmental agency. Research on the role of personal reputation in drug approval and regulatory decision-making has been neglected. Our main research questions are as follows: (1) How does personal reputation influence regulatory decision-making, especially in drug approvals? (2) How does this personal reputation spillover effect play out in a non-Western context? (3)Does the political identity of entrepreneurs have a moderating effect on the role of their reputation in the Chinese context? We spent nearly one year to construct a dataset covering 894 medicines, 187 diseases, 354 drug company chairmen, and more than tens of thousands of media reports on medicines and entrepreneurs over 20 years (2002-2022). Positive and negative media coverage measured the reputation of the entrepreneurs. Regulatory decision-making was assessed by the approval time at the Center for Drug Evaluation in China. In addition, we conducted an event history analysis and used proportional hazard modeling to test our hypotheses. Preliminary findings reveal there is a reputation spillover in regulatory decision-making. Interestingly, a lower reputation of an entrepreneur significantly increases the likelihood of his or her company’s drugs receiving approval(at the 1% level). Meanwhile, we found that this reputation spillover effect will be significantly moderated by the political identity of the entrepreneur (at the 1% level), specifically, when an entrepreneur holds a position in legislatures as a deputy in the People’s Congress, the likelihood of the entrepreneur’s drugs receiving approval will be more influenced by his or her reputation. The contributions of our findings are as follows: First, we confirm that bureaucratic reputation mechanisms originating in the West apply to Chinese regulations. Second, we illustrate how individual reputations have impacts on official regulatory reputation management which can illustrate agency reputation relies on personal reputation in China’s context. Finally, the empirical evidence introduces the personal reputation effects and the moderating effect of the political individual in the analysis of organizational behavior, enriching reputation and reputation spillover theory to shed light on organizational reputation study.