1 Does ISO 9000 certification matter for firm performance? A group matched analysis of Greek listed firms Efrosini Siougle a , Claire Economidou b , Kyriakos Drivas b , Sophia Dimelis a a Department of Informatics, Athens University of Economics and Business, 76 Patission, Athens 10434 b Department of Economics, University of Piraeus, Karaoli & Dimitriou 80, Piraeus 18534 Abstract This study investigates whether the certification with the International ISO 9000 Quality Management Standard affects the financial performance of Greek listed firms for the last two decades. The ISO 9000 certified firms are categorized into two groups: the group of firms that hold the certification for all the years that are listed and the group of firms that initiate the certification at some point after entering the stock market. The financial performance of both certified groups is compared to the financial performance of a control group of non- certified firms. Furthermore, the effect of the ISO 9000 certification is examined by comparing the financial performance within the two certified groups. It is also examined whether the effect of the ISO 9000 certification endures in the long run. Both unmatched and matched samples were used and coarsened exact matching techniques were employed, as well as robustness tests on firm sectoral and technology prototypes analysis. The findings indicate that both groups of certified firms exhibit higher financial performance in comparison to the group of non-certified firms. The financial effect of the ISO 9000 certification endures in the post-certification period. The effect is more pronounced when using matched sample procedures. The robustness tests support the evidence. Keywords: ISO 9000 certification; firm performance; group analysis; matching; coarsened exact matching
36
Embed
Does ISO 9000 certification matter for firm performance? A ... · Does ISO 9000 certification matter for firm performance? A group matched analysis of Greek listed firms Efrosini
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
Does ISO 9000 certification matter for firm performance?
A group matched analysis of Greek listed firms
Efrosini Siougle
a, Claire Economidou
b, Kyriakos Drivas
b, Sophia Dimelis
a
a Department of Informatics, Athens University of Economics and Business, 76 Patission, Athens 10434
b Department of Economics, University of Piraeus, Karaoli & Dimitriou 80, Piraeus 18534
Abstract
This study investigates whether the certification with the International ISO 9000 Quality
Management Standard affects the financial performance of Greek listed firms for the last two
decades. The ISO 9000 certified firms are categorized into two groups: the group of firms
that hold the certification for all the years that are listed and the group of firms that initiate
the certification at some point after entering the stock market. The financial performance of
both certified groups is compared to the financial performance of a control group of non-
certified firms. Furthermore, the effect of the ISO 9000 certification is examined by
comparing the financial performance within the two certified groups. It is also examined
whether the effect of the ISO 9000 certification endures in the long run. Both unmatched and
matched samples were used and coarsened exact matching techniques were employed, as
well as robustness tests on firm sectoral and technology prototypes analysis. The findings
indicate that both groups of certified firms exhibit higher financial performance in
comparison to the group of non-certified firms. The financial effect of the ISO 9000
certification endures in the post-certification period. The effect is more pronounced when
using matched sample procedures. The robustness tests support the evidence.
Keywords: ISO 9000 certification; firm performance; group analysis; matching; coarsened
exact matching
2
1. Introduction
The International ISO 9000 Quality Management Standard has received noticeable
worldwide acceptance. An ever growing number of firms devote the effort and the high cost
required to achieve compliance with the ISO 9000 standard and obtain or renew the relevant
certification as a proof of implementing and maintaining a quality management system. In
2013, over one million ISO 9000 certificates were issued across 187 countries (ISO, 2015).
The growing widespread adoption of the ISO 9000 Standard has motivated researchers to
explore whether benefits derive from the relevant certification. A large body of research
focuses on the financial performance benefits associated with the ISO 9000 certification. An
interesting issue concerning the impact of the ISO 9000 certification on firm’s financial
performance is that the results reported by relevant studies appear to be contradictory. A
number of studies report that the ISO 9000 certification is positively related to the financial
performance of adopting firms (e.g. Heras et al., 2002a; Corbett et al., 2005; Sharma, 2005;
Naveh and Marcus, 2005; Benner and Veloso, 2008; Levine and Toffel, 2010; Starke et al.
2012; Ullah et al., 2014; Chatzoglou et al., 2015). Other studies report that the impact of the
ISO 9000 certification on firm’s financial performance is weak or that the financial
performance benefits do not endure in the long run (e.g. Carr et al., 1997; Lima et al., 2000;
Singels et al., 2001; Rahman, 2001; Heras et al., 2002b; Wayhan et al., 2002; Martinez-Costa
and Martinez-Lorente, 2007).
The conflicting results reported by various studies of existing literature allow additional
investigation on the issue of whether financial performance improvements are gained due to
the ISO 9000 certification.
In this study, we seek to investigate whether the ISO 9000 accreditation is an important
factor affecting firms’ current and future performance. In particular, we focus on whether the
possession of an ISO 9000 certification, which is considered indicative of a firm’s quality
management system, is eventually translated into an improvement of the firm’s financial
performance measures.
In doing so, we examine the effect of the ISO 9000 certification on the financial
performance of publicly traded firms by comparing the groups of firms that hold the ISO
9000 certificate with a control group of firms that have never acquired such a certificate,
using both unmatched and matched analysis. Furthermore, the effect of the ISO 9000
certification is examined by comparing the financial performance within the certified
3
subgroups of the study. The analysis is based on an original data sample from all firms listed
in the Athens Stock Exchange covering the period 1992 to 2013.
A firm’s financial performance is captured by several measures such as return on equity
(ROE), return on assets (ROA), profit margin (PM) and asset turnover (ATO) ratios. Return
on equity (ROE) provides a measure of profitability attributable to shareholders. Return on
assets (ROA) provides a measure of profitability related to the firm’s total assets.
Furthermore, we disaggregate ROA into the key driver ratios of asset turnover (ATO), which
relates to asset utilization and profit margin (PM), which relates to operating efficiency
(Fairfield et al., 2001; Soliman, 2008).
The contribution of this study to existing literature is three-fold. Firstly, the study
employs a sample consisting of all the firms listed in a less mature stock exchange as
compared to European peers. Secondly, a more profound analysis is performed based on both
unmatched and matched sample procedures employing coarsened exact matching techniques
to match the certified with the control firms, using pre-certification matching criteria.
Furthermore, the sample firms are classified into different technology prototypes and between
the manufacturing and service sectors. Thirdly, the analysis is based on original detailed data
of Greek listed firms from 1992 to 2013, which allows accounting for the impact of
measurable factors such as financial performance variables.
In particular, a novel methodological approach is followed by categorizing firms into
different groups based on the time period that they adopted (or not) the ISO 9000
certification. The first group – always – comprises firms that hold an ISO 9000 when entering
the stock market and are, therefore, certified for all the years that are included in the sample
period. The second group – starters – comprises firms that obtained the ISO 9000 certificate
during some point after entering the stock market. The third group – never – comprises firms
that have never obtained an ISO 9000 certification.
The findings indicate a positive and statically significant association between the ISO
9000 certification and the financial performance measures employed, for most of the
proposed group classifications. The evidence suggests that the ISO 9000 certified firms show
significant improvements in their financial performance in comparison to the non-certified
firms. This finding is in-line with existing studies in the field (e.g. Sharma et al., 2005;
Corbett et al., 2005; Starke et al., 2012; Ullah et al., 2014).
Also, more light is shed regarding the impact of the ISO 9000 certification within the
certified subgroups. The evidence indicates that the certified subgroup of starters is more
benefited from the ISO 9000 certification than the certified subgroup of always.
4
Furthermore, a long lasting effect of the ISO 9000 certification on the financial
performance of certified firms is documented. Evidence is provided of a positive and
statistically significant association of the ISO 9000 certification and the financial
performance measures employed, in the three post certification periods. This finding is
consistent with existing literature (e.g. Corbett et al., 2005; Naveh and Marcus, 2005).
More importantly, the findings remain in the same direction regardless of the process:
unmatched or matched samples. The positive and statistically significant association between
ISO 9000 certification and firm’s financial performance is more pronounced in the matched
sample.
The findings of the study are robust after controlling for sector and technology prototype
effect. Manufacturing and service ISO 9000 certified firms show better financial performance
than the same sector non-certified firms. High-tech and low-tech ISO 9000 certified firms
exhibit higher return on equity (ROE) and assets utilization (ATO) than the corresponding
non-certified firms.
This study relates to the relevant existing literature in the following aspects: Firstly, this
study relates with studies comparing the performance between ISO certified and matched
non-certified firms (e.g. Corbett et al., 2005; Naveh and Marcus, 2005; Levine and Toffel,
2010; Ullah et al., 2014) as well as between certified groups of firms (e.g. Benner and
Veloso, 2008). Additionally, more detailed comparisons are performed using a specific group
classification that separates ISO certified firms into the groups of always certified firms and
ISO starters. It should also be noted that a matching technique, i.e. the coarsened exact
matching one, has not been applied in the relevant field.
This study is also close to studies examining the impact of the ISO 9000 certification on
the performance of Greek firms (e.g. Tsekouras et al., 2002; Dimara et al., 2004; Ismyrlis and
Moschidis, 2015; Chatzoglou et al., 2015)1. We differentiate from these studies as they either
use survey data or regular data from non-listed Greek firms.
The policy implication of this study is that the acquisition of the ISO 9000 certification is
beneficial to Greek listed certified firms as it creates better prospects for the firms that
operate under a tough business environment.
1A number of ISO 9000 related studies employing data from Greek companies include the following:
Gotzamani and Tsiotras, 2001; Lagodimos et al., 2005; Tzelepis et al., 2006; Gotzamani, 2010; Psomas and
where the variable yit is as previously defined. The term ∑ 휁𝑠 𝐼𝑆𝑂_𝑆𝑇𝐴𝑅𝑇𝐸𝑅𝑆𝑖𝑡+𝑠3𝑠=1
indicates the three dummy variables for the three post-certification periods for the starters
group. The variable STARTERS_INITIALit is a dummy variable taking the value of one in
the year of the initial ISO 9000 certification for the starters and zero otherwise. Coefficients
ζs1, ζs2, ζs3 capture the effect of the ISO 9000 certification on each of the three post
certification periods for the starters group.
In all the above equations, (1) to (7), year and industry dummy variables are included
in order to control for year and industry effects.
4.2 Developing the matched sample
As already stated, the analysis is started using unmatched samples by including in the
relevant group comparisons non-similar treated and control firms. This may lead to
comparing firms that have different market characteristics. Therefore the problem of
selectivity bias in estimating the abovementioned equations needs to be addressed (it can be
argued that better performing firms self-select into adopting the ISO 9000 certification).
14
To mitigate the self-selection problem, a matching method should be employed. In this
analysis, Coarsened Exact Matching (CEM)8 is employed, as the method of matching treated
certified firms to similar non-certified control firms according to specific covariates. The goal
is to find for each treated firm one control firm that is “closest” or “most similar” on all the
covariates used for the matching. In this way the basic difference between the treatment and
the control group is the ISO 9000 certification. Improvements in the financial performance of
certified firms can be attributed to the ISO 9000 certification as the certified treated and the
non-certified control firms share similar characteristics.
The matching procedure is performed using pre-certification matching criteria i.e. similar
firm characteristics the year before the initial certification year (t-1), an approach followed by
a number of studies (e.g. Lima et al., 2000; Corbett et al., 2000; Naveh and Marcus, 2005)9.
The precertification matching covariates employed in this study i.e. firm size, firm age and
earnings per share, were previously described in section 3. We follow the procedure proposed
by Iacus et al. (2012) in order to perform the matching between the firms of the starters
group and the firms of the control never group based on the above-mentioned characteristics.
5. Empirical results
5.1 Unmatched sample results
The first goal of this study is to compare the financial performance of the ISO 9000 certified
listed firms with the control group of non-certified listed firms (never) using unmatched
samples. This goal is further expanded by comparing each of the two certified subgroups,
always and starters, with the control group of never firms. Furthermore, in order to examine
whether the effect of the ISO 9000 certification tends to endure in the long run, the
performance between the certified and non-certified groups is compared in three post
certification periods (period1: one to three post certification years, period2: four to six post
certification years and period3: seven to nine post certification years). Another goal of this
study is to compare the financial performance within the two certified subgroups, always and
never. The empirical results of the analysis in unmatched samples are presented in Tables 2, 3
and 4 of the following sections.
8Iacus et al. (2012) present the properties and benefits of using Coarsened Exact Matching (CEM) method. The
routine of CEM is found in the Stata .do file by Blackwell, Iacus, and King (2009). 9 The studies of Lima et al. (2000), Corbett et al. (2000) and Naveh and Marcus, (2005) compare the
performance of certified to non-certified firms which have similar characteristics the year prior to the ISO 9000
certification year.
15
5.1.1 Performance comparison across groups in unmatched samples
The findings for all certified firms (full sample of certified firms) when compared to the
never group (equation 1) are presented in Table 2 Panel A. Table 2 Panel B presents the
findings for the always group when compared to the never group (equation 2), while Panel C
presents the findings for the starters group when compared to the never group (equation 3).
Insert Table 2 about here
The empirical evidence presented in Panel A Table 2 reveals an α1 positive and
statistically significant coefficient (equation 1) indicating a positive association between the
ISO 9000 certification and firm’s financial performance for all the four measures used in the
analysis - ROE, ROA, PM and ATO. ISO 9000 certified firms achieve higher financial
performance in comparison to firms that have never obtained the ISO 9000 certification.
The empirical evidence presented in Panel B Table 3 indicate a statistically significant
association between ISO 9000 certification and return on assets (ROA) as well as profit
margin (PM) for the always group when compared to the non-certified firms (never) (β1
coefficient of equation 2).
The evidence presented in Panel C Table 2, indicate the same positive and statistically
significant relationship between ISO 9000 certification and starters financial performance for
all the four measures used in the analysis - ROE, ROA, PM and ATO (γ1 coefficient of
equation 3). The starters group appears to outperform the non-certified firms in all the
financial performance measures employed.
Therefore, the total ISO 9000 certified firms exhibit higher financial performance in
comparison to the firms that have never obtained an ISO 9000 certification.
5.1.2 Performance comparison within the certified groups
Table 3 presents the empirical results by comparing the performance within the two certified
subgroups (always and starters) (equation 4).
Insert Table 3 about here
The findings presented in Table 3 suggest that the starters group is more benefited from
the ISO 9000 certification when compared to the always group in terms of ROE and ATO
(positive and statistically significant association at the 5% and 1% level of significance
respectively, coefficient δ2 of equation 4). There is no difference in the financial performance
of the two certified groups (starters and always) in terms of ROA and PM. So, firms that
16
initiate the ISO 9000 certification after entering the stock market (starters) exhibit better
financial performance, in terms of ROE and ATO, in comparison to the always certified
firms. Therefore, the benefits deriving from the ISO 9000 certification have been realized
earlier for the always whereas for the starters this takes place at later years.
5.1.3 Performance long run comparison across groups in unmatched samples
Table 4 presents the empirical findings of the comparison between the certified groups of the
proposed classification and the control group of never-certified firms in each of the three post
certification periods.
Insert Table 4 about here
The findings presented in Table 4 Panel C suggest that the effect of the ISO 9000
certification on return on equity (ROE), return on assets (ROA) and profit margin (PM)
continues to exist in the second post certification period for the starters group. Even more,
for the starters the lasting effect for the profit margin measure (PM) is still evident in the
third post certification period (statistically significant at the 5% level of significance).
For the all certified firms (Panel A Table 4) and the always group (Panel B Table 4) the
ISO 9000 effect is more pronounced in the first post certification period, where we observe a
statistical significant association of the return on equity (ROE) and return on assets (ROA)
measures with the ISO 9000 certification. For the all certified group the positive and
statistically significant effect of the ISO 9000 certification on firm’s financial performance
endures in the second post certification period for the measure of return on assets (ROA).
5.2 Matched sample results
The second goal of this study is to compare the financial performance of the ISO 9000
certified firms with a control group of non-certified firms using matched sample procedures.
Tables 5, 6, 7 and 8 present the empirical results of the analysis in the matched sample of
starters and never firms.
The matched sample analysis is started by comparing the starters group with the control
group of never firms. Table 5 presents the differences in the means for all the variables that
are used in the analysis the year prior to the initial certification year. The differences are
tabulated for both the unmatched and matched sample.
Insert Table 5 about here
In the matched sample (Table 5 Panel B), of the 80 starters, 67 firms are successfully
matched to 67 never firms (84%). The results presented in Table 5 Panel B reveal that the
17
matching procedure is effective, since the mean values of starters and never show no
significant differences the year prior to the initial certification year, in terms of the three
matching covariates employed (size, age and firm business performance).
In the unmatched sample, Table 5 Panel A, the comparison of the performance between
ISO starters and never firms reveals that on average the two groups are different. The ISO
starters have higher mean values than the never group in all the variables, outcome and
matching, except for the age variable. In the age variable we observe that firms that have
never obtained an ISO 9000 certification are on average older than starters.
5.2.1 Performance comparison in the matched sample
Table 6 presents the empirical results of re-estimating equation (3) to examine the effect of
the ISO 9000 certification on firm’s financial performance using the matched sample of the
starters and the never firms.
Insert Table 6 about here
The results presented in Table 6 further support the findings that starters achieve higher
performance in comparison to firms that have never obtained an ISO 9000 certification. The
statistically significant association between all firm’s performance measures employed -
ROE, ROA, PM, ATO - and ISO 9000 certification continues to exist even after controlling
for the possible selection bias effect of the unmatched sample. The evidence provided
supports the conclusion that the financial performance of listed firms that initiate the ISO
9000 certification at a given point after entering the stock exchange (starters) is improved in
comparison to the financial performance of the matched non-certified control group of non-
certified firms (never).
5.2.2 Performance long run comparison in the matched sample
Table 7 presents the results of re-estimating equation (7) to examine whether the effect of the
ISO 9000 certification lasts in the long run, using the matched sample of starters and never
groups.
Insert Table 7 about here
The empirical evidence presented in Table 7 is in accordance with the previous
suggestion that the ISO 9000 certification effect continues to exist even after the first post
certification period. The matching procedure reveals that the lasting ISO 9000 effect
18
continues to be apparent in the second post certification period for all the financial
performance measures (ROE, ROA, PM and ATO) employed in the study (as reported in
Table 4 Panel C for the unmatched sample). Moreover, in the third post certification period is
proved to be statistically significant not only for the profit margin measure (PM) (as
supported in the unmatched sample in Table 4 Panel C) but also the return on equity (ROE)
and the asset turnover (ATO) measures. Therefore, the effect of the ISO 9000 certification on
the firm’s financial performance endures in the long run. The effect of the certification on
return on assets (ROA) and profit margin (PM) is evident from the year of the ISO initiation.
6. Robustness analysis
To increase the confidence in the results obtained previously, a robustness analysis is
performed in this section. In particular, a sector analysis is suggested by classifying firms into
manufacturing and services. Furthermore, a technology prototype analysis is suggested by
classifying firms into high-tech and low-tech.
6.1 Sectoral analysis
Table 8 presents the empirical results of the sectoral analysis in the unmatched samples.
Insert Table 8 about here
The empirical results of Table 8 Panels A and B, indicate that manufacturing and service
certified firms exhibit better financial performance in comparison to the same sector non-
certified firms. Furthermore, the findings indicate that there are some differences in the
performance of service firms compared to the manufacturing firms. The services firms show
a positive and statistically significant relationship between the ISO 9000 certification and all
four financial performance measures for all the group comparisons (all certified versus never,
always versus never, starters versus never) with only the exception of asset turnover (ATO)
in the always firms when compared to the never firms. The manufacturing firms show
positive and statistically significant coefficients for the three out of four measures in the
starters group when compared to the never group (with the exception of profit margin – PM).
Table 9 presents the empirical results of the sectoral analysis in the matched sample of
the starters and never groups.
19
Insert Table 9 about here
The findings presented in Table 9 indicate that, the financial performance of the starters
group is superior to the financial performance of the matched never group even after
controlling for the sector effect. The results are more pronounced in the matched sample.
Particularly, in the matched sample, the manufacturing firms show a positive and statistically
significant relationship between ISO 9000 certification and all four financial performance
measures. The services show the positive and statistically significant relationship for three
out of the four measures (with the exception of ROE).
6.2 Technology prototypes analysis
Table 10 presents the empirical findings of the technology prototypes analysis in unmatched
samples, while Table 11 presents the empirical findings of the same analysis in the matched
sample of starters and never groups.
Insert Table 10 about here
The empirical findings presented in Table 10 for the unmatched sample indicate that
certified firms differ from non-certified firms (never) both for high-tech and low-tech
classification in the performance measures related to the assets utilization. A statistically
significant association of the return on assets (ROA) ratio is noticed in all the treatment
groups (always, starters) relative to the never control group. This finding is more apparent in
the case of starters relative to never, where we notice that apart from ROA there are
significant differences in the asset turnover (ATO) and profit margin (PM) ratios as well,
which conclude to a significant return on equity (ROE).
In the matched sample the empirical findings presented in Table 11 support the previous
suggestions. Both high-tech and low-tech certified firms (always, starters) differ from the
control never firms regarding return on assets (ROA) and its components (PM and ATO).
Nevertheless, we notice that in the matched sample (Table 9) ROA differences generate
higher return on equity only for the high-tech group.
Insert Table 11 about here
20
7. Conclusions
This study examines the effect of the ISO 9000 certification on the financial performance of
all Greek listed firms from 1992 to 2013. The firm’s financial performance is measured by
return on equity (ROE), return on assets (ROA), profit margin (PM) and assets turnover
(ATO). The analysis is conducted by categorizing the firms into groups based on whether
they hold an ISO 9000 certification (certified firms) or not (non-certified firms) and by
further categorizing the firms within the certified group to those that always hold an ISO
9000 certification and to ISO starters. The analysis is performed using both unmatched and
matched sample procedures. The matching procedure between the ISO 9000 certified firms
and the control group of non-certified firms is performed by employing coarsened exact
matching techniques using pre-certification matching criteria i.e. firm size, firm age and
earnings per share, a business performance measure. Prior literature is also extended by
comparing the performance within the certified subgroups of the study (always and starters).
Furthermore, it is explored whether the ISO 9000 certification effect lasts in the long run
within the proposed group classification. Finally, robustness tests are conducted by
examining the effect of the ISO 9000 certification in the manufacturing and service sectors
and between high-technology and low technology firms in the proposed group classification.
The findings suggest that the ISO 9000 certified firms (both the starters and always
groups) exhibit significantly greater financial performance in comparison to the firms that
have never obtained an ISO 9000 certification. Evidence is provided that the starters are
more benefited from the ISO 9000 certification than the always. Also, a long lasting effect of
the ISO 9000 certification on the firms’ financial performance is documented.
The findings remain in the same direction regardless of the process: unmatched or
matched samples. The effect of the ISO 9000 certification is even more pronounced when
using matched sample procedures.
The findings are robust after controlling for the sector and technology prototype effect.
The results may differentiate across samples due to differences in market characteristics,
sizes, structures and technology regimes.
21
References
1. Adams, M. (1999), “Determinants of ISO accreditation in the New Zealand
manufacturing sector”, Omega International Journal of Management Science, 27(2), 185-
292.
2. Benner, M. J., F. M. Veloso (2008), “ISO 9000 practices and financial performance: A
technology coherence perspective”, Journal of Operation Management, 26(5), 611–629.
3. Blackwell, M., S. Iacus, G. King (2009), “CEM: Coarsened exact matching in Stata”, The
Stata Journal, 9(4), 524-546.
4. Carr S., Y. T. Mak, J. E. Needham (1997), “Differences in strategy, quality management
practices and performance reporting systems between ISO accredited and non-ISO
For the comparison of starters and never in the unmatched sample, we include in the sample all the years of the never firms and the year prior to the initial
certification year for the starters.
For the comparison of the starters and never in the matched sample, we include the year prior to the certification year for each starter and the matched never firm.
Year t is the year of the initial certification for starters, and year t-1 is the year prior to the initial certification year.
t-statistics: *significant at 10%; **significant at 5%; ***significant at 1%
31
Table 6. Performance comparison in the matched sample
StartersNever
Dependent variables
ROE ROA PM ATO
ISO certification 0.0357***
(0.000)
0.0128***
(0.001)
0.0665***
(0.001)
0.2013***
(0.000)
R2 0.25 0.36 0.16 0.32
Notes.
t-statistics: *significant at 10%; **significant at 5%; ***significant at 1%
32
Table 7. Performance long run comparison in the matched sample