While ISO 9000 has been shown to improve internal metrics of firm performance, external measurements may be unaffected. This paper examines the economic value of successive generations of the ISO 9000 standard by assessing the equity returns of 204 firms certified between 1999 and 2002. This study also examines the economic effects of ISO 9001:2000 versus the superseded 1994 standards. The complete sample experienced no significant changes in stock price. The market reaction to ISO 9001:2000 certification is significantly more positive than the reaction to ISO 9000:1994 registration.
Existing literature is sharply divided over whether ISO 9000 is ultimately good or bad for companies (Anderson et al., 1999; Beirão and Sarsfield Cabral, 2002; Corbett et al., 2005; Docking and Dowen, 1999; Hoyle, 1994; Huarng and Lee, 1995; Huarng et al., 1999; Juran, 1995; Kanji, 1998; Lima et al., 2000; Martinez-Costa and Martinez-Lorente, 2003; Nicolau and Sellers, 2002; Subba Rao et al., 1997; Uzumeri, 1997). For firms that voluntarily pursue certification, a common method to justify initial costs is the potential to create significant economic value through quality improvement (Anderson et al., 1999). However, even articles in the popular press have cast doubt on this claim and have offered evidence that ISO 9000 is not a guarantee of product quality or market value for the firm (Milbank, 1994). Therefore, a question arises as to whether there is sufficient justification for a firm to pursue a program that carries with it no guarantee of external value. Our paper will shed light on this critical issue by determining if an ISO 9000 certification announcement has an impact on the market value of a firm.
Despite the confusion over the value of ISO 9000, the standard has evolved over the past 15 years from “a means to harmonize disparate European regulatory bodies” into a global meta-standard in almost 150 countries (International Organization of Standardization, 2003; Zuckerman, 1994). As ISO 9000 has spread worldwide, it has also become part of the global supply chain and is increasingly becoming a requirement for doing business particularly in Europe, where certification is a means of obtaining the CE Mark, a regulatory seal for products critical to public safety (Anderson et al., 1995). In the United States, the Departments of Defense and Energy, Food and Drug Administration, and the Federal Aviation Administration all have adopted varying degrees of ISO 9000 as a supplier requirement (Anderson et al., 1995). Many firms have followed suit and demand that their suppliers become certified (Anderson et al., 1999; Subba Rao et al., 1997).
In addition, the standard has undergone additional modifications, including the adoption of the ISO 9000:2001 standard, which has attempted to align the goals of ISO 9000 certification with the principles of Total Quality Management (TQM). Furthermore, the standard has eliminated the ISO 9002 and 9003 series, thereby requiring any firm wishing to achieve ISO certification to meet all 20 requirements of the standard.
In this paper, we have examined the abnormal stock market reaction for the dates surrounding an ISO 9000 certification announcement. Based on a sample of 204 firms of various sizes and industries that announced ISO 9000 certification from 1999 to 2002, we find no evidence that the stock market has any significant positive reaction. We do find that the market value of equity for larger firms decreases by about 0.7%. For firms that announced certification to the 1994 series of standards, the market value of equity did not change significantly for ISO 9002 and decreased by about 0.7% for ISO 9001. For firms announcing ISO 9001:2000 certification, we find that the market value of equity increases.
A limitation of this study is that it provides a lower bound on the total economic value of ISO 9000. We examined only the impact of the actual attainment of the certificate on the market value of the firm's equity. It would be interesting to study the long-term financial impact of attaining ISO 9000 certification to determine the extent to which the market anticipates the certification and further reassesses the post-announcement operating performance of the firm. The methodology employed by Hendricks and Singhal, 2001 and Hendricks and Singhal, 2005 would be particularly helpful in this effort. Future research should also explore if the results we observe for this sample of American firms also apply internationally, particularly in the rapidly expanding Asian economies. Additionally, industry-specific event studies should be explored to determine if the results are also applicable within particular 4-digit SIC codes.
One primary area of future research stems from our conclusion that the market perceives ISO 9001:2000 differently from its 1994 predecessors. It would also be interesting to evaluate the financial and operating performance of firms that were once ISO 9001:1994 or ISO 9002:1994 registered but who choose not to upgrade to the new standard and let their certificate expire. Corbett et al. (2005) reported that ISO 9000:1994 firms exhibited better financial performance than noncertified firms as measured by several accounting and operating ratios, but our results suggest that these internal production economics measures might not necessarily be perceived by a firm's external stakeholders and incorporated as improvements in shareholder value. Since our results suggest that as ISO 9001:2000 is associated with positive changes in a firm's external market measurements, it would be of interest to examine if the standard has that same impact on internal measures of firm performance.
