Question

Managerial Economics & Organizational Architecture (6th Edition)

Chapter 22, Problem 5AMD2

6. Despite the above indications of a strong ethical culture within the company, a number of civil and criminal actions have been instituted against J&J. In November 2013, a massive $2.2 billion settlement was made to resolve claims resulting from the promotion of unapproved or off-label uses for three drugs and alleged kickbacks to physicians and a nursing home pharmacy distributor.

A. Discuss the impact of this settlement on J&J’s market value.

Answer 1

The company Johnson & Johnson along with its subsidiaries will have to pay about to more than 2.2 billion in order to resolve the criminal and the civil liability which has been raised by the reason of the allegation related to the drugs issue for using the amount in its product which was not approved by any of the institution including food and drug administration and also the intake of it was not safe. This was one of the largest frauds that could be seen in the U.S history done by any of the company in respect of using drugs. The impact of this was the company has to pay many criminal fines which totaled up to the amount of $485 million and also some civil settlements have to be made and paid to the government which totaled around $1.72 billion. The health and safety was the main issue and due to this reason the company also lost its reputation in the market.