The Effects of Total Quality Management on Corporate Performance: An Empirical Investigation
Posted: 27 Jan 1997
Date Written: April 1996
This article examines the impact of deployment of Total Quality Management (TQM) systems on the performance of a sample of 108 firms which began serious efforts to implement TQM between 1981 and 1991. The impact of the adoption of TQM is measured by comparing each firm's performance to that of a control benchmark designed to capture what the firm's performance would have been had it not adopted TQM. The findings indicate that performance, measured by profit margin, return on assets, asset use efficiency, and excess stock returns, is improved for the sample of firms that adopted TQM. Performance of the TQM firms is also analyzed based on the extent of development of the firm's TQM approach as assessed by interviewing a senior quality executive in each firm. For firms with more advanced TQM systems, the improvement in financial performance is notably and consistently stronger. Results are also improved when manufacturing firms are considered alone. The association between performance and changes in the number of employees is examined to determine if downsizing is a key driver of the improved performance. The data do not support this hypothesis.
JEL Classification: C12, D21, G14, L21, L23, M11, O33
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