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The Long-Run Stock Price Performance of Firms with Effective TQM Programs

Author

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  • Kevin B. Hendricks

    (Richard Ivey School of Business, The University of Western Ontario, London, Ontario N6A-3K7, Canada)

  • Vinod R. Singhal

    (DuPree School of Management, Georgia Institute of Technology, Atlanta, Georgia 30332)

Abstract

This paper documents the long-run stock price performance of firms with effective Total Quality Management (TQM) programs. The winning of quality awards is used as a proxy for effective TQM implementation. We compare stock price performance of award winners against various matched control groups for a five-year implementation period and a five-year postimplementation period. During the implementation period there is no difference in the stock price performance, but during the postimplementation period award winners significantly outperform firms in the various control groups. Depending on the control group used, the mean outperformance ranges from 38% to 46%. Our results clearly indicate that effective implementation of TQM principles and philosophies leads to significant wealth creation. Furthermore, our results should alleviate many of the concerns regarding the value of quality award systems. Overall, these systems are valuable in terms of recognizing TQM firms and promoting awareness of TQM.

Suggested Citation

  • Kevin B. Hendricks & Vinod R. Singhal, 2001. "The Long-Run Stock Price Performance of Firms with Effective TQM Programs," Management Science, INFORMS, vol. 47(3), pages 359-368, March.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:3:p:359-368
    DOI: 10.1287/mnsc.47.3.359.9773
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    References listed on IDEAS

    as
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    2. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Easton, George S & Jarrell, Sherry L, 1998. "The Effects of Total Quality Management on Corporate Performance: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 71(2), pages 253-307, April.
    5. Kothari, S. P. & Warner, Jerold B., 1997. "Measuring long-horizon security price performance," Journal of Financial Economics, Elsevier, vol. 43(3), pages 301-339, March.
    6. Kevin B. Hendricks & Vinod R. Singhal, 1997. "Does Implementing an Effective TQM Program Actually Improve Operating Performance? Empirical Evidence from Firms That Have Won Quality Awards," Management Science, INFORMS, vol. 43(9), pages 1258-1274, September.
    7. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    8. Kevin B. Hendricks & Vinod R. Singhal, 1996. "Quality Awards and the Market Value of the Firm: An Empirical Investigation," Management Science, INFORMS, vol. 42(3), pages 415-436, March.
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