The Value of Management Control Systems: Evidence on the Market Reaction to ISO 9000 Quality Assurance Certification
Posted: 27 Feb 1998
We study the link between firm value and quality management practices by examining stock price reactions to third party attestation that a firm's quality control process complies with ISO 9000 quality assurance standards. We find that ISO 9000 certification is motivated by international sales opportunities for attaining 'preferred supplier' status with manufacturing customers availability of alternatives for disclosing quality and costs of obtaining certification. Our analysis of wealth effects which addresses Lanen and Thompson's (1988) critique by controlling for investors' prior anticipation of certification indicates that factors which explain certification also explain cross-sectional variation in abnormal returns around the certification date. Additionally we find that firms voluntarily disclose information about ISO 9000 certification when certification is initiated by the firm but not when certification is in response to customer demands or regulatory requirements.
JEL Classification: G10, M11
Suggested Citation: Suggested Citation