Does ISO 9000 Certification Benefit Service Firms?

Abstract

This paper examines whether ISO 9000 certification benefits service firms in terms of their financial performance and promotes sustainable improvement. We argue that in a developing country setting such as China, the massive benefits brought by the signalling effect of the certification can discourage firms’ motivation to fully implement the standard of certification and lead to the decline of investment on productivity-improving activities. In other words, the certification may have negative effects on the productivity of certified firms. We investigate 89,024 firms in Chinese service industries to assess the impacts of the certification on sales, productivity and profitability of these firms. To address the potential selection bias of ISO 9000 certification, the Propensity Score Matching method and Coarsened Exact Matching method were used. Our key findings are that the ISO 9000 certification does help to increase the total amount of sales, but it decreases the productivity and profitability of these certified service firms. We also find that earlier certifiers seem to gain larger advantage in sales but more reduction in productivity, and firms with higher level of technology intensity seem to obtain a larger increase in sales and less productivity loss after receiving their ISO 9000 certification.