Six Sigma Stock Returns and Operating Performance

Abstract

Since the 1980s, industrial organizations have adopted practices such as Six Sigma to maintain and enhance competitiveness. It is expected that Six Sigma should work as a positive signal to convey quality expectations to both customers and investors. Financially speaking, Six-Sigma must be translated into larger profits and increased shareholder wealth, as it is, after all, the fiduciary duty of the management team including the board of directors. In this study we expand the literature by looking at both financial and operational effects of undergoing through Six-Sigma trainings. We provide evidence of a four year catching up period of Six-Sigma companies listed in the Fortune 500 when adjusted for size and industry; we provide evidence of a negative mean abnormal returns following the first three years after implementation of Six-Sigma, but it becomes positive thereafter. In addition, we further analyze the effects on operating performance of undertaking Six-Sigma, also adjusted for industry and size. We only find significant statistical differences in two, out of 5 financial/operating performance aspects analyzed. Our findings, which are robust to several specifications of the tests, suggest that Six-Sigma firms, on average, are less liquid and have lower employee growth than Non-Six-Sigma firms.