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Quality Awards and the Market Value of the Firm: An Empirical Investigation


Author Info

  • Kevin B. Hendricks

    (School of Business, The College of William and Mary, Williamsburg, Virginia 23187)

  • Vinod R. Singhal

    (School of Management, Georgia Institute of Technology, Atlanta, Georgia 30332)

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    This paper empirically investigates the impact of winning a quality award on the market value of firms by estimating the mean "abnormal" change in the stock prices of a sample of firms on the date when information about winning a quality award was publicly announced. We note that the abnormal returns generated by the quality award winning announcements provide a lower bound for the impact of implementing an effective quality award improvement program. Our results show that the stock market reacts positively to quality award announcements. Statistically significant mean abnormal returns on the day of the announcements ranged from a low of 0.59% to a high of 0.67% depending on the model used to generate the abnormal returns. The reaction was particularly strong for smaller firms (mean abnormal returns ranged from low of 1.16% to a high of 1.26%), and for firms that won awards from independent organizations such as Malcolm Baldrige, Philip Crosby, etc. (mean abnormal returns ranged from a low of 1.31% to a high of 1.65%). Winning a quality award also conveys information about the systematic risk of the firm. We find a statistically significant decrease in the equity and the asset betas after the quality award announcement. There is also evidence to suggest that large firms experience negative stock price performance in the second year before winning quality awards, which is followed by a year of positive performance. Small firms experience a positive stock price performance in the second year before winning quality awards but no negative performance before winning quality awards.

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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 42 (1996)
    Issue (Month): 3 (March)
    Pages: 415-436

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    Handle: RePEc:inm:ormnsc:v:42:y:1996:i:3:p:415-436

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    Keywords: total quality management; TQM; quality awards; stock market reaction; event study;


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    Cited by:
    1. David I. Levine & Michael W. Toffel, 2008. "Quality Management and Job Quality: How the ISO 9001 Standard for Quality Management Systems Affects Employees and Employers," Harvard Business School Working Papers 09-018, Harvard Business School, revised Jan 2010.
    2. Repenning, Nelson P. (Nelson Peter) & Sterman, John., 1997. "Getting quality the old-fashioned way : self confirming attributions in the dynamics of process improvement," Working papers WP 3952-97., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Joshua G. Rosett & Richard N. Rosett, 1999. "Characteristics of TQM: Evidence from the RIT/USA Today Quality Cup Competition," NBER Working Papers 7241, National Bureau of Economic Research, Inc.
    4. Ni, John Z. & Flynn, Barbara B. & Jacobs, F. Robert, 2014. "Impact of product recall announcements on retailers׳ financial value," International Journal of Production Economics, Elsevier, vol. 153(C), pages 309-322.
    5. Samuel Mongrut & Jesús Tong, 2005. "Is There a Market Payoff for Being Green at the Lima Stock Exchange?," Working Papers 06-02, Departamento de Economía, Universidad del Pacífico, revised Jan 2006.
    6. Fynes, Brian & de Burca, Sean & Mangan, John, 2008. "The effect of relationship characteristics on relationship quality and performance," International Journal of Production Economics, Elsevier, vol. 111(1), pages 56-69, January.
    7. Sadikoglu, Esin & Zehir, Cemal, 2010. "Investigating the effects of innovation and employee performance on the relationship between total quality management practices and firm performance: An empirical study of Turkish firms," International Journal of Production Economics, Elsevier, vol. 127(1), pages 13-26, September.
    8. Nicolau, Juan Luis & Sellers, Ricardo, 2010. "The quality of quality awards: Diminishing information asymmetries in a hotel chain," Journal of Business Research, Elsevier, vol. 63(8), pages 832-839, August.
    9. Souraj Salah & Abdur Rahim & Juan A. Carretero, 2011. "Implementation of Lean Six Sigma (LSS) in supply chain management (SCM): an integrated management philosophy," International Journal of Transitions and Innovation Systems, Inderscience Enterprises Ltd, vol. 1(2), pages 138-162.
    10. Lin, Chin-Sen & Su, Chao-Ton, 2013. "The Taiwan national quality award and market value of the firms: An empirical study," International Journal of Production Economics, Elsevier, vol. 144(1), pages 57-67.
    11. Sarkar, Salil K. & de Jong, Pieter J., 2006. "Market response to FDA announcements," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 586-597, September.
    12. Martinez-Costa, Micaela & Martinez-Lorente, Angel R. & Choi, Thomas Y., 2008. "Simultaneous consideration of TQM and ISO 9000 on performance and motivation: An empirical study of Spanish companies," International Journal of Production Economics, Elsevier, vol. 113(1), pages 23-39, May.
    13. Özlem Yaþar Uðurlu & Nurettin Ýbrahimoðlu & Sibel Ayas, 2013. "A Content Analysis on Management Fashions in Turkish Manufacturing Companies," International Review of Management and Marketing, Econjournals, vol. 3(4), pages 164 - 183.
    14. Corredor, Pilar & Goñi, Salomé, 2011. "TQM and performance: Is the relationship so obvious?," Journal of Business Research, Elsevier, vol. 64(8), pages 830-838, August.
    15. McGuire, Stephen J. & Dilts, David M., 2008. "The financial impact of standard stringency: An event study of successive generations of the ISO 9000 standard," International Journal of Production Economics, Elsevier, vol. 113(1), pages 3-22, May.
    16. Mariana Conte Grand & Vanesa V. D'Elia, 2005. "Environmental news and stock markets performance: Further evidence for Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 300, Universidad del CEMA.
    17. Lo, Chris K.Y. & Yeung, Andy C.L. & Cheng, T.C.E., 2009. "ISO 9000 and supply chain efficiency: Empirical evidence on inventory and account receivable days," International Journal of Production Economics, Elsevier, vol. 118(2), pages 367-374, April.


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