Quality awards and the market value of the firm: An empirical investigation

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. The authors note that the abnormal returns generated by the quality award winning announcements provide a lower bound for the impact of implementing an effective quality improvement program. The present results show that the stock market reads 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. The authors 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.