This study examines the ex-ante incentives and ex-post consequences of the revolving door between FDA reviewers and the pharmaceutical industry. The ex-ante incentives arise because regulatory agency employees are frequently hired by the industry they previously regulated. Anticipation of future industry employment could motivate FDA reviewers to be more lenient in the review process for new drugs. Using a comprehensive dataset linking 724 reviewers' career trajectories and 1,121 drug applications reviewed for the period 2009-2019, I find that FDA revolvers in supervisory positions approve lower-quality new drugs, which is consistent with revolvers exhibiting leniency. FDA revolvers in more junior positions exert more effort during the review process, consistent with revolvers' motivation to provide an ability signal to potential future employers. With respect to ex-post consequences, I find that firms that hire junior FDA reviewers have higher subsequent drug quality, suggesting junior revolvers deploy their specialized expertise after they join the industry. Senior revolver review experience is positively associated with a greater likelihood of new drug direct approval, implying an applied expertise in navigating the new drug approval process. My study contributes to accounting literature by shedding light on how firms can align future employees' goals in anticipation of employee selection. I also show that revolving door incentives influence the FDA's new drug approval process, indicating that policymakers should consider the full picture of revolving door effects in regulatory design.
Read
