Raising awareness of the benefits of certification and assurance services
In ‘Impact of ISO 9000 certification on firm performance: evidence from Brazil’ (Starke, Eunni, Fouto, de Angelo, 2012) the research tests three key hypotheses:
H1 – There is a direct and positive relationship between ISO 9000 certification and increase in sales revenues
H2 – ISO 9000 certification is likely to be associated with reduction in the ratio of cost of goods sold to the sales revenues of the certified firm
H3 – ISO 9000 certification is likely to be associated with increased asset turnover ratio, i.e. sales revenue/total assets of the certified firm.
To test these, data was analysed over a 12 year period from January 1995 to December 2006 of the performance of 44 Brazilian companies who were certified to ISO 9000 over this period. The majority of the companies (79% were from the manufacturing sector, 18% were service companies and one from the primary sector. Having selected the companies to be evaluated, financial information was then integrated to see how these organisations had performed relative to the test hypotheses.
Regarding a relationship between ISO 9000 certification and sales revenues, ‘All the coefficients for the independent ISO 9000 certification variable appeared positive and significant at 1%, evidencing positive contribution of the certification to increase in sales revenue. Thus, our H1 was confirmed. As theoretically predicted, the adoption of ISO 9000 standards by a firm is followed by a significant increase in its sales revenue’.
The second hypothesis examined a link between ISO certification and a reduction in the ratio of sales costs to revenue. The report states that , ‘All the coefficients for the independent variable were negative and significant at 1%, pointing to a positive contribution of the certification to cost savings. As a result, we accept H2 and conclude the adoption of ISO 9000 standards by a company is likely to lead to a reduction in the ration of cost of goods sold to sales revenue of the certified firm’.
The report’s final hypothesis was examined if ‘ISO 9000 certification is likely to be associated with an increase in the asset turnover ratio, i.e. sales revenue/total assets of the certified firm’. As with the other two hypotheses, this hypothesis was also found to be true.
The nature of the companies surveyed also enables the report to conclude that a variety of organisations can benefit from certification, with the various companies surveyed benefiting according to all three hypotheses. This means small or large organisations different sectors and differing capital structure involving their debt and equity.
‘In sum, all the three hypotheses formulated for our study were confirmed by the panel of 44 publicly held companies in Brazil during the years 1995-2006’.
Universidade de São Paulo (Starke, Foute, de Angelo), Williamson College of Business Administration, Youngstown State University (Eunni)