Why firms lose their ISO 9001 certification: Evidence from Portugal

Abstract

More than one million certified companies must choose, every three years, whether to renew or to withdraw from ISO 9001 certification. This paper investigates whether ISO 9001 decertification decision is driven by economic motivations. Using standard event-study methods, the paper looks into this question by comparing the abnormal performance of a sample of Portuguese firms that lose their certification with that of similar, non-event, firms. The paper finds no statistically significant differences in the economic performance of these two sets of firms in their post-ISO certification period. Such evidence suggests that economic underperformance is not the reason why companies are ISO decertifying and further suggests that the decision to decertify is economically irrelevant. The study advances possible explanations for this (ir)relevancy and puts forwards implications for theory and for the ISO 9001 governance system. The governance system must change in order to increase the economic benefits that organisations can expect to gain from ISO (re)certification. This is the first study assessing the impact of ISO 9001 certification on firms that subsequently lost the certificate.

Keywords:

• decertification
• economic performance
• event study
• ISO 9001
• small and medium-sized enterprises

Acknowledgements

The authors wish to thank two anonymous reviewers for their insightful comments and helpful suggestions. The authors also wish to thank Jennifer Nicole Elston and Carina Ramos Jesus for their help.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The matching procedure yields individual control portfolios that have between 2 and 859 matched firms.

2 The Shapiro–Wilk test always rejected the hypothesis that abnormal performance is normally distributed with p-values below 0.01 in all the scenarios this paper explores.

3 On average, 32,000 firms are considered when computing the statistics for the AMADEUS population presented in Table 3.

4 One possible explanation links to the fact that 2008 was the first year of the world-wide financial crises generated by the demise of Lheman Brothers. Yet, the design of this paper’s event-study minimizes such criticism since the sample firms are carefully matched with other similar companies that have to compete in the exact same underlying economic setting.

5 Considering models of abnormal performance that match control firms on lagged ROA and 2-digit SIC code, lagged ROA and 4-digit SIC code or lagged ROA and 2-digit SIC code and size yields essentially the same result. These are available on request from the authors.

Additional information

Funding

This paper is financed by National Funds of the FCT – Portuguese Foundation for Science and Technology within the project ‘UID/ECO/04007/2019’.