Resolving Information Asymmetries in Supply Chains: The Role of Certified Management Programs

Abstract

In this paper, I conduct one of the first evaluations of a voluntary management program that features an independent verification mechanism to determine whether it is achieving its ultimate objectives. Using a sample of thousands of manufacturing facilities across the United States, I find evidence that the ISO 14001 Environmental Management System Standard has attracted companies with superior environmental performance, and that adoption leads to further performance improvement. This contrasts sharply with findings from prior evaluations of voluntary management programs that lacked verification mechanisms. This suggests that independent verification mechanisms such as certification may be necessary for voluntary management programs to mitigate information asymmetries surrounding difficult-to-observe management practices. Implications are discussed for the industry-associations, government agencies, and the non-governmental organizations that design these programs, the companies that are investing resources to adopt these programs, and those that are relying on them as a credible signal of superior management practices. The substantial variation in magnitude and significance of the results across comparison groups and performance metrics highlights the need for researchers to conduct robustness tests when evaluating voluntary management programs.

Keywords: information assymetry, auditing, evaluation, voluntary programs, environmental, supply chain, ISO 14001, certified, propensity score matching

JEL Classification: D82, L15, M11, M14, Q53