Impact Of ISO 9000 Certification On Firms’ Financial Performance

Background

Discuss about the Statistics and Business Research Method.

The concept of ISO 9000 series of value administration frameworks standard has been broadly applauded worldwide since its inception in 1987. Beginning of 2014 saw over 1million facilities adopting ISO 9000 in close to 189 countries. Practitioners and academicians are enthusiastic in understanding the influencing factors that determine the adoption of ISO 9000 and the impact these factors have on financial performance of the firms (Benner & Veloso , 2008).

The current study sought to explore whether the ISO 9000 accreditation is a vital factor influencing firms’ present and future performance. Specifically, we center the study on whether the ownership of an ISO 9000 affirmation, which is viewed as demonstrative of a company’s quality administration framework, is in the end converted into a change of the company’s financial performance (Du, Yin, & Zhang, 2016).

In doing as such, we look at the impact of the ISO 9000 accreditation on the monetary performance of traded on an open market firms by contrasting the groups of firms that hold the ISO 9000 accreditation with a control group of firms that have never gained such a certification, utilizing both unmatched and matched analysis (Nakamura, Takahashi, & Vertinsky, 2001). Moreover, the impact of the ISO 9000 affirmation is inspected by looking at the monetary performance in the certified subgroups. The investigation is pegged on census data of the service firms that was conducted by the National Bureau of Statistics of China in 2008.

The contributions from this investigation to existing body of knowledge is three-fold. Right off the bat, the investigation utilizes a sample comprising of the considerable number of firms in the service industry (Chatzoglou, Chatzoudes, & Kipraios , The impact of ISO 9000 certification on firms’ financial performance, 2015). Besides, a more significant examination is performed in view of both unmatched and matched sample strategies utilizing coarsened exact matching systems to match the ISO 9000 accredited firms with the control firms.

The study sought to answer three research questions. The three research questions are;

Q1: Is there significant difference in the financial performance of the ISO 9000 certified firms and the non-certified firms?

Q2: What factors significantly influence the adoption of ISO 9000 certification by companies?

Q3: Is there association between ISO 900 certification and the industry where the firm operates in?

Existing body of knowledge examines the impact on company’s money related performance as a result of the adoption of the ISO 9000 certification. As earlier mentioned, a substantial assortment of existing literature gives blended and clashing confirmation with respect to the connection between ISO 9000 accreditation and organization’s financial performance. Different investigations contend that there exists a solid and positive connection while other scholars contend that such a connection are feeble or even negative. The non-existent or weak role of the ISO 9000 accreditation on company’s financial performance is accounted for by existing examinations.

Research Questions

The investigation of Singels et al. (2001), finds that the execution of the ISO 9000 confirmed firms isn’t superior to that of non-certified firms. Additionally, the investigation of Lima et al. (2005), finds that there is no distinction with respect to the financial performance between the ISO 9000 affirmed firms and a control group of comparative non-certified firms.

In a similar line, the examination of Wayhan et al. (2002), reports that the effect of ISO 9000 accreditation on the organization’s financial performance, measured by return on assets (ROA), is extremely constrained and this impact rapidly blurs away after some time. Correspondingly, the investigation of Martinez-Costa and Martinez-Lorente (2007), reports that the ISO 9000 accreditation effect is negative as affirmed firms receive less profit and ROA in the post three-year accreditation period.

Moreover, the investigation of Naveh and Marcus (2005), reports that the ISO 9000 certified firms are not profited from the accreditation as the accreditation does not prompt an expansion in their profitability. Furthermore, the exploration of Tsekouras et al. (2002), utilizing a sample of 143 Greek firms that embraced ISO 9000 schemes in the vicinity of 1989 and 1993 and comparative non-adopters, finds no impact of the ISO 9000 accreditation on firm’s performance. Then again, it creates the impression that more recent examinations demonstrate a solid and positive relationship between ISO 9000 certification and company’s financial performance.

The investigation of Sharma (2005), finds that the monetary performance of the ISO 9000 affirmed firms, is essentially more prominent in contrast with the money related performance of matched non-certified firms (particularly in net revenue). In a similar vein, the investigation of Corbett et al. (2005), finds that traded on an open market ISO 9000 accredited US firms demonstrate essential unusual money related performance improvements three years after accreditation, in all instances of the matched control groups studied. Moreover, the examination of Chow-Chua, et al. (2005), finds that the ISO 9000 accreditation prompts critical upgrades in performance, in the five year time frame following confirmation paying little mind to matched control group specification, however this isn’t really the case for business performance improvements. Also, the investigation of Levine and Toffel (2010), reports that the ISO 9000 accredited firms encounter significantly more prominent development after accreditation concerning employment, sales and several employee results in contrast with the matched non-accredited firms. In a similar line, the exploration of Ullah et al. (2014), finds that the ISO affirmed firms display higher work efficiency and lower cost of sales when contrasted with a matched control group of non-certified firms. Also, the investigation of Chatzoglou et al. (2015), finds that the ISO 9000 accreditation is exceptionally connected with general monetary performance improvements.

Existing Literature

This section describes how to perform the unmatched and matched analysis of this study based on the proposed group classification. The unmatched analysis involves comparing the performance of the ISO 9000 certified groups with a control group of non-certified firms irrespectively of the different characteristics of the compared firms. The matched analysis involves comparing the relevant groups (the ISO certified group versus the non-certified) by including those certified and non-certified firms that share similar characteristics based on specific pre-certification matching criteria such as firm size, firm age and business. Independent t-test will be used to compare the financial performance of the two groups (certified and non-certified groups). In regard to factors influencing certification, a logistic regression model will be used to test whether there is significant influence of the factors on the dummy variable for certification (i.e. 1 = certified, 0 = non-certified).

First we looked at the frequency table and graph of the categorical variables (certification dummy and the industry). As can be seen in table 1 below, more than 90% of the firms were not ISO 9000 certified with only 8% (n = 460) having been certified for the ISO 9000 standards.

Table 1: Certification frequencies
	Frequency	Percent	Valid Percent	Cumulative Percent
Valid	Not certified	5257	92.0	92.0	92.0
Certified	460	8.0	8.0	100.0
Total	5717	100.0	100.0

Next we looked at the industry of the firms regardless as to whether they were certified or not. Results showed that majority of the firms (47.6%, n = 2722) were dealing with business services. 21% (n = 1200) were involved in specialized technology services. The remaining firms each accounted for less than 10% of the total number of firms studied were in various areas including storage and transportation (6.9%), software (6.8%), computer services (6.4%), technology exchange and promotion (4.2%), Research and Development (3.9%) and lastly telecommunication (3.2%).

The average number of employees for all the 5717 firms was found to be approximately 45 with the highest number of employees being 969 and the lowest being 11. In terms of sales, the accumulated average sales for all the firms was found to be 11,698.6 with the highest recorded sales being 869176 and the lowest sales being 1000. Profit for the companies was averaging at 2067.97 with the highest profit being 296176 and the lowest sales profit 17.

Table 2: Descriptive Statistics
	N	Minimum	Maximum	Mean	Std. Deviation	Skewness
Statistic	Statistic	Statistic	Statistic	Statistic	Statistic	Std. Error
Employee number	5717	11	969	44.96	74.378	5.823	.032
Sales	5717	1000	869176	11698.57	32873.609	11.328	.032
Profit	5717	17	296176	2067.97	7158.417	19.254	.032
Asset	5717	1000	978548	16473.16	54666.560	9.296	.032
Return on sales	5717	.01	.51	.1911	.12397	.514	.032
Return on asset	5717	.01	1.02	.2236	.20858	1.500	.032
Valid N (listwise)	5717

The first inferential statistics done was a chi-square test of association. We sought to understand whether there is an association between certification and the firm’s industry.

The following hypothesis was tested at 5% level of significance.

H₀: There is no association between certification status and industry where the firm belongs to.

Methodology

H₁: There is association between certification status and industry where the firm belongs to.

Results of the test are given below;

Table 3: Chi-Square Tests
	Value	df	Asymp. Sig. (2-sided)
Pearson Chi-Square	381.455a	7	.000
Likelihood Ratio	361.226	7	.000
Linear-by-Linear Association	.963	1	.327
N of Valid Cases	5717
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 14.80.

As can be seen in table 3 above, the p-value of the Pearson Chi-Square is 0.000 (a value less than 5% level of significance), we therefore reject the null hypothesis (H₀) and conclude that there evidence of significant association between certification status and industry where the firm belongs to. Majority of certified firms (47.6%) were in specialized technology services while for the non-certified firms, majority (50.4%) were in Business services.

Next, we sought to investigate whether there is significant differences in the financial performance of the certified firms and the non-certified firms. Essentially, we considered the profit of the firm for purposes of financial performance. To test this, an independent samples t-test was used. The following hypothesis was tested;

H₀: There is no difference in the mean profit for the certified and non-certified firms

H₁: There is significant difference in the mean profit for the certified and non-certified firms

Results of the test are given below;

Table 4: Group Statistics
	Certification dummy	N	Mean	Std. Deviation	Std. Error Mean
profit	Not certified	5257	1865.26	6911.274	95.321
Certified	460	4384.67	9237.036	430.679

Table 5: Independent Samples Test
	Levene’s Test for Equality of Variances	t-test for Equality of Means
F	Sig.	t	df	Sig. (2-tailed)	Mean Difference	Std. Error Difference	95% Confidence Interval of the Difference
Lower	Upper
profit	Equal variances assumed	82.963	.000	-7.271	5715	.000	-2519.4	346.491	-3198.7	-1840.2
Equal variances not assumed			-5.712	505	.000	-2519.4	441.101	-3386.0	-1652.8

An independent samples t-test was done to compare the mean profit realized by the ISO 9000 certified firms and non-certified firms. Results showed that the certified firms (M = 4384.67, SD = 9237.04, N = 460) had significant difference in terms of the profit made when compared to the non-certified firms (M = 1865.26, SD = 6911.27, N = 5257), t (5715) = -7.27, p < .05, two-tailed. The difference of -2519.4 showed a strong significant difference.  Essentially results showed that ISO 9000 certified firms made huge profits (more than double) as compared to the non-certified firms.

In this section, we sought to find out what factors are significantly related with the firm’s certification.

ANOVAa
Model	Sum of Squares	df	Mean Square	F	Sig.
1	Regression	25.126	7	3.589	51.506	.000b
Residual	397.861	5709	.070
Total	422.988	5716
a. Dependent Variable: certification dummy
b. Predictors: (Constant), return on asset, employee number, FDI dummy, age of company in years, equity, return on sales, asset

Coefficientsa
Model	Unstandardized Coefficients	Standardized Coefficients	t	Sig.
B	Std. Error	Beta
1	(Constant)	.061	.008		7.588	.000
employee number	.001	.000	.197	13.995	.000
age of company in years	.002	.001	.061	4.591	.000
FDI dummy	-.035	.021	-.022	-1.683	.092
asset	-1.691E-008	.000	-.003	-.130	.897
equity	2.326E-007	.000	.027	1.035	.301
return on sales	-.107	.035	-.049	-3.050	.002
return on asset	-.046	.021	-.036	-2.231	.026
a. Dependent Variable: certification dummy

The above results shows that the overall model is significant.

Four factors were found to significantly affect the ISO 9000 certification of firms in China. The four factors are; employee number, age of the company, return on sales and return on assets. Variables such as FDI dummy, asset and equity had no significant influence on ISO 9000 certification of the firms.

The employee number and age of the company were found to be positively related with the ISO 9000 certification. This means that companies with many employees and have been in existed for a longer period of time have higher probability of being ISO 9000 certified.

Return on sales and return on assets on the other hand had negative relationship with the ISO 9000 certification. This means that increase in either return on sales or return on assets would result to a decrease in probability of getting ISO 9000 certified.

Descriptive Statistics

The current study sought to explore whether the ISO 9000 accreditation is a vital factor influencing firms’ present and future performance. Specifically, we center the study on whether the ownership of an ISO 9000 affirmation, which is viewed as demonstrative of a company’s quality administration framework, is in the end converted into a change of the company’s financial performance. Results showed that indeed ISO 9000 certified companies are more likely to make huge profits as compared to non-certified firms. In particular, we found out that ISO 9000 certified firms make more than double the profit made by the non-certified firms. It would therefore advisable that the management of the firms consider ISO 9000 certification of their firms since it has positive financial performance influence on the firms.

The current study was only limited to firms in China, next research should focus on utilizing a panel data for at least 5 countries and attempt to understand the influence that ISO 9000 certification has on the company’s financial performance.

References

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Chatzoglou, P., Chatzoudes, D., & Kipraios , N. (2015). The impact of ISO 9000 certification on firms’ financial performance. International Journal of Operations & Production Management, 35(1), 145 – 174.

Chatzoglou, P., Chatzoudes, D., & Kipraios, N. (2015). The impact of ISO 9000 certification on firms’ financial performance. International Journal of Operations & Production Management, 35(1), 145 – 174.

Chow-Chua, C., Goh, M., & Tan, B. W. (2003). Does ISO 9000 certification improve business performance? International Journal of Quality & Reliability Management, 20(8), 936-953.

Corbett, C., Montes–Sancho, M., & Kirsch, D. (2005). The financial impact of ISO 9000 certification in the US: an empirical analysis. Management Science, 51(7), 1046-1059.

Du, Y. Z., Yin, J. L., & Zhang, Y. L. (2016). How innovativeness and institution affect ISO 9000 adoption and its effectiveness: evidence from small and medium enterprises in China. Total Quality Management & Business Excellence, 27(11-12).

Levine, D. I., & Toffel, M. W. (2010). Quality Management and Job Quality: How the ISO 9000 Standard for Quality Management Systems Affects Employees and Employers. Management Science, 56(6), 978–996.

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Nakamura, M., Takahashi, T., & Vertinsky, I. (2001). Why Japanese firms choose to certify: A study of managerial responses to environmental issues. Journal of Environmental Economics and Management, 42(1), 23-52.

Naveh, E., & Marcus , A. (2005). Achieving competitive advantage through implementing a replicable management standard: Installing and using ISO 9000. Journal of Operations Management, 24(1), 1-26.

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Tsekouras , K., Dimara, E., & Skuras, D. (2002). Adoption of a quality assurance scheme and its effect on firm performance: A study of Greek firms implementing ISO 9000. Total Quality Management, 13(6), 827-841.

Ullah, B., Wei, Z., & Feixue, X. (2014). ISO certification, financial constraints, and firm performance in Latin American and Caribbean countries. Global Finance Journal, 25(3), 203–228.

Wayhan, V. B., Kirche, E. T., & Khumawala, B. M. (2002). ISO 9000 certification: The financial performance implications. Total Quality Management, 13(2), 217-231.