Long-Run Performance Following Quality Management Certification

Abstract

Public firms that seek and successfully receive ertification of quality management, type ISO 9000, seem to experience different post-announcement share-price drifts depending on their size. This result is not consistent with the notion that companies seeking to implement a quality management system may be reducing agency problems between managers and shareholders, which are among corporate governance and control goals of any well management company. Otherwise, we should have observed material and positive abnormal share-price changes, following ISO 9000 registration announcements, independently of company size. Our results show that only stocks of large-size firms, experience positive average significantly abnormal returns over the post-announcement 1, 2, and 3-year horizons. On the other hand, stocks of small-size firms experience negative average significantly abnormal returns, and stocks of mid-size firms do not show any material gain over the same horizons. Although there is a rich finance literature that has studied the long-run abnormal stock-price returns following several major corporate events, this study seems to be the only one that have examined the potential long-run impact of this certification-event, despite the fact that those standards have been around since the middle 1980s.

Keywords: Quality management certification, ISO 9000 standards, Buy-and-hold abnormal returns, Calendar-time abnormal returns

JEL Classification: G32, G33, G34