The Financial Impact of ISO 14001 Certification Top-Line, Bottom-Line, or Both

The Financial Impact of ISO 14001 Certification: Top-Line, Bottom-Line, or Both?
Author(s): Pieter de Jong, Antony Paulraj and Constantin Blome

Source: Journal of Business Ethics, Vol. 119, No. 1 (January 2014), pp. 131-149
Published by: Springer
Stable URL: https://www.jstor.org/stable/42921279
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J Bus Ethics (2014) 119:131-149
DOI 1 0. 1 007/s 1 055 1-012-1 604-z
The Financial Impact of ISO 14001 Certification: Top-Line,

Bottom-Line, or Both?
Pieter de Jong * Antony Paulraj • Constantin Blome
Received: 10 June 201 2 /Accepted: 18 December 2012 /Published online: 23 January 2013
© Springer Science+Business Media Dordrecht 2013
Abstract It is not easy being green, but it does beg the significant improvement in top-line performance. Thus, we
question: Does being green pay off on the bottom-line? conclude that environmental management pays off along
Unfortunately, that question of becoming ISO 14001 to reap both dimensions.
financial benefit remains widely unanswered. In particular,

corporate practice is interested in how environmental man- Keywords ISO 14001 • Environmental management
agement impacts firms' finance through top-line impact, systems • Event study • Financial performance •
bottom-line impact, or both - as this paves the way for an Top-line impact • Bottom-line impact
investment of environmental management. As current find-
ings are mixed, our study tracks financial performance of
publicly traded US firms between 1996 and 2005 to test Introduction
whether ISO 14001 leads to improved financial performance.
Employing a rigorous event-study approach, we compare Corporations exist to create profit, but society rapidly is
certified firms to different control groups based on several coming to the conclusion that there are more kinds of profit
matching criteria that include industry, size, and/or ROA. In than just monetary. Doing business in such a way as to
the short run, ISO 14001 certification makes only a minor make a minimal adverse environmental impact can profit a
impact on the bottom-line, according to our results. How- company. In light of the organizational emphasis on the
ever, these same results show a significant financial triple-bottom-line of people, planet, and profit, researchers
improvement over the long haul with ISO 14001 certifica- have conducted numerous studies to see whether green
tion. Additionally, this long-term improvement also makes a management pays off (Hart and Ahuja 1996; Orsato 2006;
King and Lenox 2001; Ambec and Lanoie 2008). We
believe that this question remains widely unanswered. We
P. de Jong attempt to address that situation with empirical tests of
Department of Accounting and Finance, whether environmental management systems (EMSs) could
Coggin College of Business, University of North Florida, contribute to the top-line of a firm, the bottom-line, or both.
1 UNF Drive, Jacksonville, FL 32224, USA
e-mail: p.dejong@unf.edu
Even though additional bottom-line effects lead to direct
financial improvement, top-line effects also are required by
A. Paulraj companies that face increased market competition. To
Department of Entrepreneurship and Relationship Management,
more effectively compete, these companies need to operate
University of Southern Denmark, Engstien
1, 6000 Kolding, Denmark without significant managerial missteps. Therefore, we
e-mail: ap@sam.sdu.dk believe that it is important to understand whether EMSs
add to the top-line, the bottom-line, or both.
C. Blome (0)
ISO 14001 certification is the most widespread interna-
Louvain School of Management, CORE, Université Catholique
de Louvain, 34 Voie du Roman Pays, 1348 Louvain-la-Neuve, tional standard used to certify EMSs. We define ISO 14001 as
Belgium a certification standard that provides a structured framework
e-mail : constantin.blome @ uclouvain.edu for firms that aspire to develop their own EMS. It focuses on
â Springer
132 P. de Jong et al.
the underlying processe

to develop, will deliver a significant positive impact on long-
achieve their own
term financial performance. envir
2003). Our research makes several contributions to literature on com
Accordingly,
their environmental
ISO 14001 certifications. First, most of the scholarly work on l
through waste and
the benefits of ISO 14001 has pollu
relied on survey data of certified
2006). By the end
firms. Given that such of
data are based on self-reported per- 20
1 59 ceptions, it is possiblehad
countries that respondents inflated
forma claims that
14001 standard (ISO
their firms achieved superior benefits 201
from ISO 14001. More
that shed importantly,
a though we do not refute that perceptual data
positive can
ligh
adopted provide similar
this valid results to objective data (Ketokivi and
standard on
gests that Schroeder 2004; Verkataraman
these and Ramanujam 1986), we
firms ado
from believe that most of the survey-based studies provided
downstream partn only
and Sroufeweak countermeasures
201 for common
1). method variance,
While a con-
tion of ISO cern14001
when collecting responses on independent
certific and depen-
dent variables
approbation using cross-sectional surveys involving
seems toa be
recent downturn in by cer
single respondent for each responding firms. Accordingly,
combining objective data
organizations. on financial performance from
Since 2006
fications decreased
Compustat with a significant portion of ISO 14001 certifica- co
increase in
tion database 2009
within the USA, and performing (7,31rigorous
believe that market saturation and limited resources for matching and analyses, our study clarifies the performance
investing in long-term projects are behind this trend. The impacts of this certification. Second, as indicated earlier, the
certification decrease must be viewed in light of the mixed relationship between ISO 14001 and performance is mixed;
empirical results obtained by researchers. The extant research critics note that the ISO 14001 is often used as a label for
focused on performance implications of ISO 14001 certifi- image-building and does not necessarily result in superior
cation shows a mixed result. Some survey-based studies performance; costs associated with EMS implementation and
found ISO 14001 certification to impact both environmental the subsequent ISO 14001 certification are not trivial; the
and financial performance positively, while others found adoption of ISO 14001 within the US is the lowest when
either negative or no performance impact (e.g., Jiang and compared to other developed nations (Paulraj and de Jong
Bansal 2003; King et al. 2005). 201 1). Therefore, by empirically studying the impact of ISO
In summary, we believe that widespread adoption of ISO 14001 certifications on objective financial performance, we
14001 certification will only take place if organizations find a believe our study will address the key question whether the
believable, compelling reason to sign on. The most likely ISO 14001 is beneficial enough to overcome the significant
reason to have this effect would be finding implications of resource investment required. Third, extant research focusing
positive financial performance related to ISO 14001 certifi- on the relationship between ISO 14001 and corporate per-
cation; but to date, there is no large-scale empirical study that formance measures have focused only on short-term impli-
analyzes the objective financial effects of this standard. cations (i.e., only up to 3 years past certification); due to such
Against this backdrop, we empirically test the impact of ISO a short-term focus, these studies find ISO 14001 certification
14001 certification on corporate performance of publicly to have a negative impact on performance. We believe these
traded companies. We combine information obtained from studies do not look far enough ahead. Our study shows that
multiple sources to identify ISO 14001 certifications covering ISO 14001 certifications can have a positive impact on firms'
United States firms. After combining this list with Compustat financial performance in both the short and long run. In
data for the period 1 994-2010, we arrive at a database of 1 346 summary, by evaluating the link between certification and
firms that were certified during the period 1996-2005. We objective performance measures (financial, top-line, and
deliberately excluded certifications past 2005 as we were bottom-line) through rigorous analyses, we believe that our
interested in analyzing the performance improvements up to study makes a significant contribution to current literature and
practice as managers can now pursue a much more informed
5 years after the first certification of a firm. We follow Corbett
et al. (2005) and match the certified firms to a control group of decision on EMS implementation.
noncertified firms using several selection criteria, including
industry, size, and return on assets. Using non-parametric test
statistics, we test whether ISO 14001 certification leads to Literature Review
performance improvement. In general, our results suggest that
ISO 14001 certification can help firms develop resource ISO 14001 certification mandates that firms routinely scru-
combinations and capabilities that, while they might take time tinize their operations to better understand any underlying
Springer
The Financial Impact of ISO 14001 Certification 133
issues and inefficiencies, evaluate their interactions

performance. with
King et al. the
(2005) fo
environment, as well as monitor and improve
fied companies them.
do not have highe
mance
Accordingly, it has the potential tothan non-certified
result firms.
in multiple bene-
found that, except
fits, including improved management, for external
processes, and per-re
legitimacy,
formance (e.g., Albuquerque the
et al. 2007; ISO certification
Bansal and Bogner a
2002; Damali and Edwards value
2006;toHandfield et EMS.
an existing al. 1997).
Despite these potential benefits,
A few the significance
studies of ISO
also have used pu
14001 certifications is eclipsed
data by several
to study criticisms
the (e.g.,
impact of ISO 1
Bansal and Hunter 2003; King
market et al. 2005).and
reaction The firstfinanc
other key
criticism is that ISO 14001 is notnot
Though a performance-based
specifically related t
McLaughlin
standard; rather than mandating an optimum (1996) adopt an ev
environmental
performance level for firms, it merely
investigate the impact focuses ofon the
environm
announcements and find that such
underlying processes and lets the organizations set and announcements were
associated with anobjectives
achieve their own environmental increase in stock market valuation. Aarts
(e.g., Corbett
and Vos
and Klassen 2006; Curkovic and(2001) Sroufe
evaluate the impact of ISO 14001
2011). certifi- reg-
Thus,
istered firms can still havecation announcements of Newprocesses
substandard Zealand firms on stock
and per- waste
streams that lack in efficiency asfind
formance and well
that the as pollution
announcements preven-
trigger a positive
impact is
tion. The second key criticism on stock
that returns.
theJacobsISO
et al. (2010)
14001 use a sample
standard
often is used as a label forsize of 50 ISO certifications within theand
image-building United States
not and find
neces-
sarily to improve environmental and financial
that the announcements performance
have a significant positive impact on
(e.g., Albuquerque et al. 2007; Bansal
the stock market. andin their
On the contrary, Hunter 2003;
recent study of
140 ISO 14001 certifications
Florida 1996; Krut and Gleckman announcements within the et al.
1998; Rothenberg
United States,
2001). Accordingly, the benefits ISO Paulraj
14001 and de offers
Jong (2011) find
mightthat such
not
announcements
be sufficient to offset the costs, created a significant negative
implementation impact on
issues, and
abnormal stock returns of US firms. However, these studies
documentation requirements.
These, as well as other concerns revolving
focus on short-term around
stock market performance,the ISO
which could
further
14001 certification, could be fuel the notion
resolved only that by
ISO 14001 is used only
clearly for
estab-
impression
lishing its positive performance management. Alternatively,
implications. With twothis
studies have
belief,
assessed
numerous scholars studied the the impact ofimpact
potential ISO 14001 onof
corporate-level
ISO 14001
certifications on improvingfinancial
environmental, operational,
measures. Using a moderate and
sample size of 81 ISO
14001this
financial performance. Most of -certified firms, Zhao (2006)
literature usefound that certification
self-reported
survey data from ISO 14001 certified
resulted firms.
in lower return Most
on revenue and notably,
return on assets, but
no change in operating
using data of 1 16 US manufacturing firms,revenue. Lee et al. (2008) use
Montabon eta al.
sample of EMSs
(2000) found ISO 14001 certified 96 Taiwanese
tofirms
haveand find that ISO 14001
a significant
positive impact on the efficiency and
certification effectiveness
significantly of return
worsened profit margin, firms.
on
Melnyk et al. (2003) use survey data
equity, and involving
earnings per share. 1,222 manu-
facturing firms and find that As
certified EMSs
evident from past empirical can
studies help firms
based on primary as to
go beyond pollution abatement and data,
well as secondary achieve positive
the performance corpo-
impact of ISO 14001
rate performance benefits. Using large-scale
is mixed. Additionally, survey
except for research,
the Zhao (2006) study, no
Sroufe (2003) found that certified EMSs
other study has used not only
a comprehensive improve
dataset within the
environmental performance, but
United States also improve
to focus on the
the impact of these environ-
certifications on
objectiveand
mental design, manufacturing, performance
waste indicators. Therefore, to practices
reduction date, the
adopted by firms. Most recently, Russo
question whether there(2009) found between
is a direct relationship that ISO the
longer a firm is certified, the
14001better the
certified EMSs effect
within the Unitedon emissions
States and objective
reduction. Extant empirical research
(financial) established
performance remains unanswered (e.g., similar
Christ-
positive relationships between
mann 2000; King and Lenox 2000, 2001).and perfor-
certified EMSs
mance (e.g., King and Lenox 2001, 2002; Klassen and
Whybark 1999; Russo and Fouts 1997). At the same time,
Hypotheses Development
researchers have used self-reported perceptual data to show
that environmental systems might not have a significant
positive impact on financial
In spiteperformance. For
of the mixed empirical evidence of its example,
performance
Russo and Harrison (2005) found
impact, ISOevidence of
14001 certification a provide
could rather weak
the impetus
link between environmental
to develop programs and
the environmental prowess financial
of an organization.
Springer
With its 1999;

explicitSharm
focu
practices, 1995).
ISO Again
14001 cer
14001
environmental certif
goals, e
actions, financial
monitor perf
them, a
set goals. In addition,
studies the I
im
and reflects a
ment commitm
initiati
Corbett
environmental et o
aspects a
dates that 2006), we
top-level use
man
definition (ROA
and - opera
docume
environmental policy.
measure finan
across various organizati
Hj The ISO 14001 certification leads to increase in
the ability
to integrate e
financial performance as measured by profitability (ROA).
organization. ISO 14001
waste As indicated in the previous
reduction andsection, ISO 14001 pollu
certi-
result in fication can influence profitability by enhancing other
performance be
By corporate ISO
getting measures such as internal
14001productivity improve- ce
the ments as well as market
guidelines in performance. Specifically, the
their d
standardization in
financial performance can increase either man
due to improve-
processes ments
as in internal well as
productivity (i.e., reduction in total cost) pr
addition to consistenc
or due to growth in market sales. Therefore, as a corollary
activities, standardizatio
to the above hypothesis, we forward two related hypotheses
to specifically test the impact
knowledgeable of ISO 14001 certification on
workforc
solving the underlying top-line and
skills bottom-line measures that
related t
2003; Levinthal and
could subsequently improve profitability. Following past Ma
research, we use
Additionally, cost of goods sold
the divided by sales
polluti
strategies(COGS/SALES)
initiated to measure bottom-line improvements in by
people productivity
intensive and relative growth in salesand
divided by total th
assets (SALES/ASSETS
development - also termed as asset turnover) to
through cr
ment (Delmas 2001;
measure top-line market performance (e.g., Corbett et al. M
such 2005; Hendricks and Singhal
strategies can1997). resu
ties that are firm-specif
H2 The ISO 14001 certification leads to increase in
socially embedded amo
productivity as measured by internal improvements (i.e.,
(Russo 2009; Teece et a
COGS/SALES).
certification can provid
which H3 The ISO 14001 certification lead to increase can
companies in market c
release performance as measured by asset turnover (i.e., SALES/
organizational re
create newASSETS).
environment
(e.g., Aragon-Correa a
Martin 2000; Zollo and
More Methodology
importantly, thro
exploit current technolo
and In this study, we follow the event-study methodology
environmental ben
also resultoutlined
in by Barber and Lyon (1996) to detect abnormal
reduced e
efficiency operating
and and financial effective
performance between certified
reputationfirms and the control group around the time
(e.g., that the ISO
King
Shaver 14001 certification is implemented.
2001; Klassen This methodology also a
Harrison has been used intensely in the field
2005; Sharmaof sustainability and
following corporate
the social responsibility (e.g., McMillan 1996; Rao
requirem
and
certification, Hamilton 1996; Gunthorpe
firms 1997; Cheah et al. 2007; ca
environmentallyCheung
Consolandi et al. 2009; Wai and 2011). As noted
oriente
socially by Corbett et al. (2005) in their study of ISO
complex 9000 certi-
envir
mately (3) fications,
achieve typical ISO 14001 implementation can take up to
comp
able in the 18 months
long (Curkovic and Sroufe run2011). Therefore, we (e.g
Springer
if the site
define the event period as the year was listed
in in that list; in casethe
which of certifications that
certification
was received (year t) and the year
were found preceding
only in IAAR, certification
we searched the company website
to find the
(t - 1). The year ř - 2 is used forcertification date.
determining the control
We the
group as the investment for ensured the authenticity of the list of certified
certification is startedfirms in
this period. We also use the
beforeperiod between
merging the certification data with/ - 3 data,.
Compustat and t -
Even
2 to determine the changes inthough the potential chances
financial and of including a non-cer-
operating per-
tified firm in the three sources
formance leading up to certification. The was five
relatively small,
years we fol-
lowing the certification specifically
are used tested for to test
this bias for
by selecting changes
a random sample in
abnormal performance. While past
of 50 firms research
that were on the
listed in either the Quality Digest or general
the
IAAR. Based on a improvements
topic of corporate performance thorough search using internet searchis varied
when it comes to considering thewebsites,
engines and company number we found thatof years
all firms were fol-
lowing certification, studies specifically
correctly listed as certified. Duringfocusing on ISO
the merging of the cer-
14001 have considered only three
tified years
list with the Compustat after
list, we used certification.
several precau-
It is also important to notetionary
that most
measures of
to ensure these of
the authenticity studies
the matching do not
find a significant positive process.
impact In a smallof
number
ISOof cases,
14001the name on
and SICobjective
code
financial performance. Therefore,
(when available) ofwe consider
the certified firm matched5exactly
years with after
certification based on our belief
the name andthat it
SIC code of will listed
a company take longer
in Compustat. In time
most cases, however, weto
for such improvement initiatives foundhave
matches with
an similar but
impact on
financial performance; this belief
non-identical namesis warranted
between when we
the certified and Compustat
list. In such cases, we tried to
refer to past studies on the financial impacts of quality- use automated and manual
related initiatives (e.g., procedures
Hendricks to match them; and Singhal
as an added step, we also man-2001;
Naveh and Marcus 2005; uallyDickverifiedet
these al. 2008).
matches using online sources such as
Hoover's Online, internet search engines, and company
Data websites. In other cases, we verified whether the certified
firm belonged to a subsidiary of another company listed in
Quality Digest shared its list of ISO 14001 certified firms Compustat. All other certified firms that were not matched in
within the USA. This list included a total of 3801 certified the above three steps were discarded. At the end of this
locations. Given that this list did not include all the firms that matching process, we identified 1,346 matching firms (cer-
were certified as of that time, we attempted to augment this tified sites) in Compustat (out of 4,162 certified firms),
dataset by looking into other potential sources. First, wesuggesting that 32 % 2 of certified firms were publicly tra-
collected 1,110 certifications from the Independent Asso- ded. Of these 1,346 firms listed in Compustat, we found 301
ciation of Accredited Registrars (IAAR) website. Second, to have received at least one ISO 14001 certification. For
we searched the newspaper and wire data sources within firms with multiple certifications, we used the firm record
LexisNexis for additional firms; this search resulted in an (site) with the earliest certification date.
additional 1,553 certifications. After eliminating duplicates We then matched these certified firms with non-certified
among these three data sources, our final list included 4,154 firms within Compustat following the procedures discussed
unique ISO 14,001 certifications.1 The Quality Digest in Corbett et al. (2005) and Lie (2001, p. 82). Our ambition
dataset included the certified site, the parent company (in was to select control firms in the same industry that are
most cases), and the date of certification; the LAAR website closest to the certified firm in terms of assets and/or ROA.
provided the certified site, address, SIC code, and other The control firm's ROA was restricted to lie between 90 and
information; the newspaper and wire data sources included 110 % of the certified firm's ROA and its assets were
the certified site, the parent company, and certification date. restricted to lie between 50 and 200 % of the certified firm's
Since the IAAR website did not provide the certification date assets. Many studies report matching procedures that are
information, we used the site information in Quality Digest based on a choice of a singular matching variable or a
combination of matching variables. We selected matching
on ROA, assets, ROA and assets, and the change in ROA
1 According to ISO, a total of 5,225 US firms were certified by 2009
(ISO 2010). If we compare our final list to the total number of from / - 3 to t - 2 and identify the closest match through a
certifications by 2009, it included approximately 80 % of the ISO step-down approach. We first identify all firms with the same
14001 certified firms. Though not complete, we believe that our final
list is a good representation of the actual ISO 14001 certified firms.
While the number of certifications per year is released by the ISO, 2 This percentage corresponds closely to Corbett et al. (2005) who
unfortunately, given that companies work with different certifying indicate that 67 % of ISO 9001 and ISO 14001 certified firms within
agencies, the details regarding certified firms and their certification the United States stated that they are either privately held or foreign
dates are not publicly available. owned.
â Springer
two-digit Descriptivecode.
SIC Statistics Of those
change in ROA, ROA and
variables Table 1 provides the descriptive
closest to analysis
thatfor the certified of t
firms firm sample forto
adhere the matching year
thoset - 2. Tables 2 and 3 ma
repeated provide thethe
for descriptive analysis for the control sample for
remainin
The process is
the one-to-one repeated
and portfolio matching procedures, respec- f
include all tively, for the matching year t -without
firms 2. While panel a within r
we still Tables 2 and
could not 3 shows the descriptive
identify statistics of the a
with control sample based onvariables
matching industry and ROA matching, panel cl
regardless b within these
of two tables (Tables 2, SIC
the 3) shows the control codes
Of the four
sample based on matching
industry, ROA and assets matching. The c
assets, and tables show the maximum, minimum,
change in mean, median, and
ROA),
the first standard deviation of
step for each of these
the10 attributes for each
step
greatest inprocedure. WhenROA,
the compared to Table 1, panel and a within t
that the Table
majority 2 shows that the mean values
of of total
theassets, net con
to the sales, and operating income
certified sample for certified firms are, on fir
ables. average, higher than the the
However, closest set of control firms mat-
assets
match ched on industrythe
returned and ROA. However, the median values
largest p
final step ofindicate that the certified procedure,
the firms are still larger with regards
firms and to total assets, net sales, and operating income
certified and smaller
sample
compared with regards
to the to sales-to-assets.matching
When compared to Table 1,
assets panel b withinDue
groups. Table 2 shows that the
to certified firms
the and e
firms and the control firms
the matched on industry, ROA and assets
certified fi
assets exhibit fewer discernable
criteria, we differencesdecided
in the means and
mance medians of the

within eight attributes. When compared
these contro to Table 1,
can consist panel
of a of Table either
3 show that the mean and median a values
sin
portfolio of total assets, net sales, and operatingmatchin
closely income for certified
firms are, on average, higher windows
post-certification than the portfolio of control
to the year firms matched
of on industry and ROA; however, those cer-
certification.
control tified firms carry aone-to-one
groups: lower sales-to-assets than do their
ROA; counterparts, matched on industry
one-to-one and ROA. Additionally,
matchin
assets; in case of median values, the
portfolio certified firms also found to
matching
portfolio matchingof control
have lower ROS than the portfolio basedfirms. When o
control compared to Table
group with1 , panel b within Table
the 3 shows that the
sin
firm certified
generated firms and
thethe control firms matched
largest on industry, c
and 249 ROA, and assets exhibit fewer discernable differences
non-certified firm in
from the the means and medians of the
original 301eight attributesfirm
except for
tified firm significantly
or lower
its mean and median ROS. These tables
matched
accounting show that the outcome
data from of our subsequent analyses
Comp is not
with the driven by the choice
closely of a particular matching scheme.
matching p
firms. We chose to keep th
matching Abnormal Performance: Analysis and Results
procedure to ens
yses are not driven by sam
only 2193 We calculated the expected performance
certified firms E[Pi>Xy¡' of firm t
i in any given period r + /, using r as base period using the
equation: E[P¡^j] = PitT + (PI/,T+/ - PI/'t)', where PIitT is
3 In case of Corbett et al. (2
the performance of firm f s control group in period x and
based on a final sample of 554
from a list ofPI/fT+/ is the performance of firm
21,482 i's control group in period
certificat
Compustat, t + /. Using actual and expected performance
resulting in measures,
an ef
554/7,238). we calculate the abnormalour
Though performance using
finalthe equation: sa
Corbett et al. (2005), it is a be
AP/,T,/ = P/.T+/ - E[Pixj]. Our event-study methodology
certified firms within the USA
16.3 % of focused on total
the testing whether this abnormal
US performance
pub
219/1,346). differed significantly from zero in the hypothesized
Springer
Table 1 Descriptive analysis for 219 certified firms from 1993 to 2010
Firm attribute Full sample (219 firms)

Min Max Mean Median SD
Total assets 1.41 750507.00 12320.23 2018.19 54852.99

Net sales 0.00 151802.00 7973.52 1760.09 18730.72
ROA -113.8261 39.2185 1.7368 4.9565 16.0459

Return on sales -15100.0000 47.4863 -69.5775 4.9950 1020.6859
Tobin's Q 43.5373 1400.7326 197.2371 152.0728 166.0133

Cogs/sales 6.5400 24730.7692 180.2195 67.4316 1666.7202
Sales/assets 0.0252 450.5983 95.2431 85.5329 53.4862
ROE -274.6000 968.6508 11.7911 12.1183 72.8146
Assets/equity -1202.0444 2315.3964 246.4500 216.4966 271.1055

Operating income -183.58 40765.00 1256.01 251.32 3639.93
Total assets, net sales, and operating income are given in millions of US Dol
Table 2 Descriptive analysis for the control firms based on two different on
(a)
Firm attribute Control sample (219 firms; by industry, ROA)

Total assets 0.43 159738.00 4132.29 176.26 18322.13

Net sales 0.00 154615.00 3922.92 169.84 17847.56
ROA -79.4554 42.6075 2.4744 5.2041 14.5230
Return on sales -845.2100 48.2063 -12.4133 5.1948 91.9864
Tobin's Q 17.9719 1612.0494 212.7784 153.2173 194.7630
Cogs/sales 6.5021 501.1789 70.5428 63.3040 56.0176
Sales/assets 0.0000 444.8913 107.7364 95.3184 66.1528
ROE -197.4911 836.8421 8.6700 9.3201 63.4128
Assets/equity -680.6221 2406.0229 217.9363 176.4822 231.3234
(b)
Firm attribute Control sample (219 firms; by industry, assets, and ROA)
Total assets 0.43 194484.00 7030.20 1339.52 19046.62

Net sales 0.00 62132.00 5252.89 1229.50 10558.12
ROA -79.4554 28.8586 2.2431 5.1962 14.2521
Return on sales -845.2100 44.8991 -11.6693 5.7913 92.4822
Tobin's Q 17.9719 1180.2837 208.4085 160.2389 152.1447
Cogs/sales 9.9246 501.1789 67.5434 59.6502 56.7442
Sales/assets 0.0000 313.2322 92.4883 87.4298 54.8423
ROE -197.4911 836.8421 8.6700 9.3201 63.4128
Assets/equity -680.6221 2406.0229 217.9363 176.4822 231.3234
Total assets, net sales, and operating income are given in millions of US D
Ô Springer
Table 3 Descriptive analysis
(a)
Firm attribute Control sample (219 firms; by industry, ROA)

Total assets 5.87 143938.00 4140.73 1032.24 13777.86

Net sales 1.62 148062.00 3691.04 1017.56 13171.23
ROA -79.3667 42.6075 2.7748 5.3417 14.5144
Return on sales -1031.7019 42.7103 -18.1943 5.8609 109.2667
Tobin's Q 59.2631 770.0672 214.0622 177.3835 117.8777

Cogs/sales 11.5075 1062.1336 83.2498 64.8131 98.1044
Sales/assets 7.3460 444.8913 108.2784 101.8665 48.9268
ROE -215.3963 2032.0152 18.6876 11.8746 140.9991
Assets/equity -3416.3022 1440.6072 197.1124 194.5590 308.0481

(b)
Firm attribute Control sample (219 firms; by industry, assets, and ROA)
Total assets 5.87 194484.00 7112.46 1846.69 18735.83

Net sales 1.62 60704.00 5628.73 1362.82 10549.35
ROA -79.6298 28.8586 2.5201 5.3393 14.2615
Return on sales -866.2716 44.8991 -16.8891 6.1165 101.3868
Tobin's Q 44.7691 983.1694 208.8054 171.7673 122.3784
Cogs/sales 11.5075 904.4517 80.2096 66.9689 88.0282
Sales/assets 7.3460 298.2974 98.4106 94.2871 46.3544
ROE -215.3963 2032.0152 18.6876 11.8746 140.9991
Assets/equity -3416.3022 1440.6072 197.1124 194.5590 308.0481
Total assets, net sales, and operating income are given in millions of US Dollars a
to-one firm match, based

direction. While it comes to establishing on industry and ROA;
significance ofpanel "b"
abnormal performance, Barber shows
and the one-to-one
Lyon match results,
(1996) statebased thaton the combi-
nation of industry, ROA,
non-parametric tests are more powerful than parametric and assets; panel "c" reports the
results of the
t tests. In addition, they specifically portfolio
state firm match,
that, when basedthe
on industry and
ROA; panel "d" shows
distribution is symmetric, the Wilcoxon signedthe portfolio
rankmatch(WSR)results, based
test will suffice. However, if on the distribution
the combination of industry, is
ROA,highly
and assets. The first
row in
skewed, the sign test (Cono ver each section
1999) of Tables 4, 5, and 6
is suggested toreports
be abnormal
performance
more appropriate. Though we report in the
all year prior
three to matching (i.e.,
statistics to AP/f/_3j).
ensure completeness, we found our data to be non-normalin the year
The second row reports abnormal performance
immediately
according to the Shapiro-Wilk test. after the decision toin
Additionally, startmost
preparation for the
ISO 14001
cases, we found the data to be highly certification
skewed(i.e., AP/,/_2,i).
as well.The third row
Therefore, we believe that the sign
reports test
abnormal is the
performance most
in the year the ISO 14001
certification In
appropriate in testing our hypotheses. was awarded. The fourth row reports
the remainder of abnormal
performance
this section, we examine whether certified in thefirms
year immediately after achieving cer-
experience
tification. The
abnormal performance improvements innext two blocksof
terms (second
ROA,and third) of results
COGS/SALES (C/S), and SALES/ASSETS (S/A). report long-term abnormal performance improvements. For
Tables 4, 5, and 6 show the results for ROA, C/S, and S/A. example, the third row in the second block (t - 1 to t + 3)
For each performance measure, we report the mean and measures APlVr,/ with t = t - 1 and / = 4, and the second
median abnormal performance measures. Each table is split row in the third block (t - 2 to t H- 1) measures APi t / with
t
into four sections: panel "a" reports the results of the one-= t - 2 and / = 3. The column marked "sk" includes
4^ Springer
Table 4 Abnormal performance in ROA
Period AP mean AP sk p value p value p value AP AP sk p value p value p value

median ( / test) (WSR) (sign test) mean median (/ test) (WSR) (sign test)
(a) One-to-one matching by industry, ROA (c) Portfolio matching by industry, ROA
/ - 3 to / - 2 -4.1300 -0.2067 s 0.0094*** 0.2796 0.0537* -4.0919 -1.2406 s 0.0002*** 0.0000*** 0.0000***
t - 2 to t - 1 14.1790 0.0248 s 0.3008 0.8925 0.6449 6.4288 1.2911 s 0.1968 0.0001*** 0.0004***
/-Ito/ -11.2860 0.0000 s 0.3818 0.5783 0.3432 -1.4477 0.6917 s 0.7756 0.1452 0.0570*
/to/+l 2.3100 0.0000 s 0.1872 0.9450 0.4190 -0.1802 0.0928 s 0.9405 0.5347 0.5516
/ - 1 to / - f- 1 -8.9760 0.7129 s 0.4571 0.1510 0.1517 -1.6279 1.0455 s 0.7169 0.0571* 0.0259**
/-Ito /+ 2 -11.4330 -0.0685 s 0.4027 0.8383 0.5991 3.2255 0.9860 s 0.6627 0.1031 0.0212**
/-Ito /+ 3 -9.0930 0.4870 s 0.4964 0.2451 0.0432** -0.6631 0.6943 s 0.9009 0.2217 0.0450**
/-Ito / + 4 -9.1260 0.8369 s 0.4816 0.0872* 0.0221** 0.0910 1.6779 s 0.9860 0.0296*** 0.0148**
/-Ito / + 5 -13.7380 0.0621 s 0.3114 0.8925 0.9907 -5.6269 0.0451 s 0.2360 0.8925 0.9230
/-2 tot 2.8940 0.6381 s 0.1292 0.1031 0.0720* 4.9811 2.2416 s 0.0357** 0.0000*** 0.0000***
/ - 2 to / + 1 5.2040 0.2618 s 0.0095*** 0.0214** 0.0067*** 4.8008 1.5319 s 0.0000 0.0000*** 0.0000***
/ - 2 to / H- 2 2.7460 0.0647 s 0.0163** 0.2796 0.1077 9.6542 1.7451 s 0.0833* 0.0000*** 0.0000***
/ - 2 to / + 3 0.9570 0.5332 0.5989 0.2495 0.5070 1.6738 0.5598 s 0.4101 0.5423 0.6074
t-2 to / + 4 5.0530 0.0734 s 0.0082*** 0.0148** 0.0028*** 6.5198 0.6465 s 0.0042 0.0000*** 0.0000***
/ - 2 to / + 5 1.7340 0.0354 s 0.0758 0.0214** 0.0099*** 1.9697 0.1662 s 0.0897 0.0000*** 0.0000
(b) One-to-one matching by industry, ROA, assets (d) Portfolio matching by industry, R
/-3 to/- 2 -3.2340 -0.1312 s 0.0270** 0.4993 0.1406 -3.1064 -0.6110 s 0.0036*** 0.0101** 0.0014***
/ - 2 to / - 1 12.9450 -0.2193 s 0.3445 0.1764 0.4346 5.6746 0.1971 s 0.2532 0.3442 0.1735
/-Ito/ -11.3050 0.0000 s 0.3802 1.0000 0.5180 -2.5640 0.0000 s 0.6031 0.8353 0.5675
/ to / -h 1 1.9190 0.0000 s 0.1864 0.8361 0.8317 0.1110 0.0930 s 0.9589 0.4479 0.6528
/ - 1 to / + I -9.3850 0.7129 s 0.4361 0.1140 0.0472** -2.4530 0.4361 s 0.5816 0.3397 0.2169
/-Ito /+ 2 -11.4770 0.0000 s 0.4004 0.8910 0.3920 2.3651 0.3741 s 0.7481 0.2752 0.3512
/-Ito /+ 3 -9.9800 1.0009 s 0.4546 0.0983* 0.0224** -1.9399 0.4308 s 0.7084 0.3742 0.2412
/-Ito / + 4 -9.4990 0.4693 s 0.4626 0.0857 0.0515 -1.0401 0.2964 s 0.8367 0.3397 0.2182
/-Ito /+ 5 -13.0540 -0.1306 s 0.3357 0.7870 0.8319 -6.4928 -1.0444 s 0.1697 0.1046 0.2230
t-2 tot 1.6410 0.2756 0.2952 0.6839 0.2596 3.1106 0.8975 s 0.1517 0.0296** 0.0083***
/ - 2 to / 4- 1 3.5600 0.2186 s 0.0576* 0.1764 0.0350** 3.2216 0.8023 s 0.0033*** 0.0044*** 0.0004***
/ - 2 to / + 2 1.4680 -0.0118 s 0.1167 0.7870 0.6980 8.0397 0.2409 s 0.1482 0.0424** 0.0109**
/ - 2 to / + 3 -0.2690 0.2780 s 0.8536 0.7350 0.8133 0.6283 0.0225 s 0.7279 0.9460 0.7663
/ - 2 to / + 4 3.4460 0.0354 s 0.0142** 0.0787* 0.0441** 4.6344 0.1998 s 0.0219** 0.0304** 0.0268**
t-2 to /+ 5 1.4150 0.0192 s 0.1321 0.1369 0.1073 0.5650 0.1005 s 0.6298 0.0029 0.0301**
The mean and median abnormal performance improvement in percentages for ROA (return on assets)
* P <0.1; ** p < 0.05; *** p < 0.01. The p values shown are those for the one-sided test of the null hypo
Wilcoxon signed rank test, and sign test, respectively. Given that the hypothesis of normally distributed ab
Shapiro-Wilk test at the 1 % level, the t test is never appropriate; but reported for the sake of completeness.
appropriate, otherwise the WSR test could be used
information on the absolute skewness of the abnormal immediately after the decision (t - 2 to t - 1) to achieve
performance distribution as defined by the third moment of certification is significant in one of the matching methods.
the distribution divided by the cube of the standard devi- The abnormal performances for the year leading up to
ation; if the absolute skewness is severe (i.e., greater than certification (t - 1 to t) and the year immediately after
1), this column will have a value of "s." The last three certification (t to t + 1) are not statistically significant. On
columns report the p values for the t test (parametric), the other hand, the cumulative abnormal improvements are
WSR, and sign test (non-parametric). much stronger. For example, when considering t - 1 as the
Table 4 reports the abnormal performance in ROA base year, the cumulative abnormal improvements are
along the four matching methods using separate sub-tables. significant in the years t + 3 and t + 4 (in three of the
Using the sign test, the most appropriate and conservative matching methods); when considering t - 2 as the base
of the three tests, abnormal performance in the year year, the cumulative abnormal improvements are
£) Springer
Table 5 Abnormal performa
Period AP mean AP sk p value p value p value AP mean AP sk p value p value p value

median (/ test) (WSR) (sign test) median ( / test) (WSR) (sign test)
/-3 to/ - 2 132.2890 0.0252 s 0.2433 0.8925 0.3514 108.6350 -0.9132 s 0.3329 0.4993 0.7205
/ - 2 to / - 1 -121.4350 0.2111 s 0.2669 0.7870 0.5736 -132.7660 0.3792 s 0.2774 0.7870 0.3514
/-Ito/ -27.5240 -0.1246 s 0.4828 0.3997 0.1661 -166.5320 -0.4008 s 0.1570 0.4043 0.1681
/ to / + 1 31.4460 -0.6475 s 0.3456 0.1088 0.2476 73.0110 -0.5316 s 0.5551 0.4892 0.3951
/ - 1 to / -h 1 8.3320 -1.7581 s 0.5743 0.1939 0.0410** -93.2660 -2.6541 s 0.1267 0.0097*** 0.0017
/ - 1 to / + 2 12.5380 -1.8728 s 0.3851 0.0887* 0.2299 -84.9090 -1.1509 s 0.2638 0.2774 0.2776
/ - 1 to / + 3 -4.5560 0.0000 s 0.8420 0.8376 0.4148 -8.3720 -1.6176 s 0.8193 0.0773* 0.1747
/-Ito / + 4 -79.9560 0.0000 s 0.2240 0.9455 0.4731 -98.2840 -1.6126 s 0.1912 0.2217 0.3528
,_lto/ + 5 -100.3560 -2.4758 s 0.3792 0.3442 0.0204** -188.2910 -1.5633 s 0.1816 0.2796 0.1777
/-2 to/ -147.6860 -1.1292 s 0.2183 0.4933 0.2908 -300.0320 -1.1443 s 0.0620* 0.3419 0.2635
/ - 2 to / -h 1 -113.1030 -0.6500 s 0.3099 0.7870 0.2341 -226.0320 -1.5615 s 0.0970* 0.1764 0.0706*
/-2to/ + 2 -108.8980 -1.4298 s 0.3299 0.1046 0.1583 -217.6750 -0.9491 s 0.1145 0.4175 0.2764
/ - 2 to / + 3 6.2980 0.6995 s 0.7902 0.7350 0.8104 -32.5030 0.5151 s 0.3094 0.6355 0.8958
/ - 2 to / + 4 -201.3910 0.3248 s 0.1179 0.8925 0.5485 -231.0500 -0.5923 0.0888* 0.4993 0.5635
/ - 2 to / -H 5 -109.7760 -0.3883 s 0.3285 0.8925 0.4418 -210.7850 -0.8959 s 0.1556 0.3442 0.6510
(b) One-to-one matching by industry, ROA, assets (d) Portfolio matching by industry
/ - 3 to / - 2 130.6910 0.6699 s 0.2490 0.1046 0.2775 107.2400 0.0287 s 0.3393 1.0000 0.8067
/ - 2 to / - 1 -117.1400 1.3559 s 0.2839 0.1764 0.0789* -129.0750 1.8524 s 0.2829 0.1046 0.0580
/-Ito/ 8.9350 -0.6687 s 0.5283 0.0691* 0.0763* -134.7000 -0.3234 s 0.2243 0.4043 0.0776*
/ to / -h 1 -1.5210 0.0000 s 0.4534 0.9447 0.7678 57.6700 -0.0146 s 0.6092 0.5801 0.5148
/ - 1 to / - |- I 7.0530 -0.4232 s 0.6056 0.2429 0.0491** -76.8510 -1.9651 s 0.1107 0.0405** 0.0037***
/ - 1 to / + 2 7.9040 -0.7103 s 0.5619 0.4110 0.3661 -78.5140 -2.3325 s 0.2536 0.1333 0.2101
/ - 1 to / + 3 7.6280 0.0000 s 0.5820 0.6797 0.2057 -9.4780 -1.6722 s 0.7936 0.3052 0.1135
/ - 1 to / + 4 7.6960 -0.3391 s 0.5829 0.4500 0.1819 -9.9950 -0.5602 s 0.8174 0.4132 0.1687
/ - 1 to / H- 5 -105.8070 -2.6624 s 0.3534 0.0304** 0.0080*** -174.4280 -3.8256 s 0.2168 0.0424** 0.0287**
/ - 2 to / -109.3520 -0.0375 s 0.3343 0.8916 0.9987 -264.4930 -0.9945 s 0.0907* 0.3074 0.6323
/ - 2 to / + 1 -110.0820 0.6695 s 0.3228 0.6853 0.9970 -205.9260 -0.1524 s 0.1119 0.8925 0.4626
/ - 2 to / + 2 -109.2360 0.3248 s 0.3283 0.8925 0.7273 -207.5890 -0.2114 s 0.1209 0.8925 0.8823
t-2 to / + 3 21.1800 2.3230 s 0.1807 0.1548 0.3558 -31.3130 0.3425 s 0.3226 0.8391 0.6442
/ - 2 to / -f 4 -109.4440 0.9797 s 0.3291 0.5889 0.9640 -139.0700 -0.5875 s 0.2514 0.6853 0.8182
/ - 2 to / + 5 -110.1210 0.2563 s 0.3269 0.8925 0.9083 -192.7530 -1.3520 s 0.1919 0.2238 0.5106
The mean and median abnormal performance improvements in percentages for COGS to sale
* p <0.1; ** p < 0.05; *** p < 0.01. The p values shown are those for the one-sided test of the null hypothesis of no abno
Wilcoxon signed rank test, and sign test, respectively. Given that the hypothesis of normally distributed abnormal performan
Shapiro-Wilk test at the 1 % level, the / test is never appropriate; but reported for the sake of completeness. In cases where ske
significant in the years t + 1 , t + 4, and ícumulative abnormal improvements are significant

+ 5 (in at least
long run (i.e.,
three of the matching methods). More importantly, thethree, four, and five years after certific
Table 5 reports
magnitude of the longer term effects is considerable. For the abnormal performance improve
example, starting with an ROA of 4.96 % inin the
C/S.matching
Among the cumulative performance periods,
cant improvements
year t - 2 (please refer to the median ROA value of cer- are significant only between t -
t - hincrease
tified firms in Table 1), the median abnormal 1 as well
inas t - 1 and t + 5 (in at least three of
ROA in year t - h 4 for portfolio matchingmatching methods).
by industry and When comparing the improveme
the case of cumulative
ROA is 0.65 % (please refer to the top right sub table in performance period t - 1 and
the lowest
Table 4) when compared to non-certified control firmsmedian
that abnormal improvement is - 1 .56
portfolio criteria
have similar ROA. Though results across matching matching by industry and ROA in Table 5a)
compared
are slightly different, when considered together, the to the median starting value of C/S of 67 %
results
across the four matching methods clearly matching
show that year
the t - 2 (please refer to the median C/S v
£) Springer
Table 6 Abnormal performance in sales-to-assets
Period AP AP sk p value p value p value AP AP sk p value p value p value

mean median (/ test) (WSR) (sign test) mean median (/ test) (WSR) (sign test)
/-3 to t-2 -7.8400 -0.6449 s 0.2423 0.5889 0.3558 -2.5570 -0.3184 0.3313 0.5889 0.5584
t - 2 to t - 1 5.3620 -0.6698 s 0.4343 0.7870 0.9425 3.7170 1.1973 s 0.1529 0.1369 0.3367
/ - 1 to / 2.4580 0.0000 s 0.6165 0.5783 0.9604 -0.2370 0.0000 s 0.9358 0.8353 0.9516
/to/+l 2.2310 1.6433 s 0.5340 0.1897 0.6402 3.1370 0.0000 s 0.2868 0.8361 0.4402
/ - 1 to / -h 1 4.6900 2.5269 s 0.2352 0.1939 0.4650 2.9000 2.2215 0.1603 0.1351 0.0675*
/ - 1 to / + 2 12.1190 6.1304 s 0.0549* 0.0347** 0.0880* 2.9260 3.0238 0.2769 0.1351 0.0963*
/ - 1 to / -h 3 12.8960 1.3936 s 0.0543* 0.3052 0.2014 4.1360 3.6865 s 0.1691 0.2217 0.0378**
/-Ito / + 4 12.9970 3.4873 s 0.0559* 0.4522 0.1421 6.3410 6.5951 0.0331** 0.0143** 0.0030***
/-Ito /4- 5 6.6110 -2.1796 s 0.3403 0.3442 0.6215 2.9740 3.6391 0.3535 0.4993 0.2932
/ - 2 to / 7.8210 2.1634 s 0.2988 0.7861 0.6885 3.4800 0.7212 s 0.3197 0.4563 0.5215
/ - 2 to / + 1 10.0520 2.9864 s 0.1353 0.4993 0.2607 6.6170 2.1403 s 0.0283** 0.3442 0.0473**
/-2 to /+ 2 17.4820 3.2119 s 0.0312** 0.2238 0.0643* 6.6430 3.6125 s 0.0647* 0.0787* 0.0189**
t-2 to /+ 3 10.4180 -0.7959 s 0.0592* 0.9460 0.4178 5.2950 3.8169 s 0.1305 0.1191 0.0966*
/ - 2 to / + 4 18.3600 1.3437 s 0.0308** 0.4175 0.0704* 10.0570 7.1948 s 0.0048*** 0.0007*** 0.0003***
t-2 to / + 5 16.5150 5.8807 s 0.0432** 0.4175 0.1640 8.9880 7.1265 s 0.0065*** 0.0101** 0.0025***
(b) One-to-one matching by industry, ROA, assets (d) Portfolio matching by indust
/-3 to/ - 2 -6.9500 -0.0475 s 0.3004 1.0000 0.6166 -3.1156 -1.5293 s 0.2524 0.5889 0.2852
/ - 2 to / - 1 3.1030 1.0852 s 0.6460 0.5889 0.8018 1.8448 1.1739 s 0.4962 0.5889 0.6831
/-Ito/ 5.8390 0.5077 s 0.2005 0.2661 0.3756 2.2269 1.0810 0.4645 0.1452 0.2464
/to/+l -1.0270 0.0000 0.7543 0.7302 0.4609 0.4473 0.0000 s 0.8793 0.9450 0.6733
/ - 1 to / -f- 1 4.8130 1.2006 s 0.1982 0.3720 0.3298 2.6742 2.3299 0.2373 0.0559* 0.0558*
/ - 1 to / + 2 13.3180 5.1548 s 0.0284** 0.0135** 0.0119** 5.0160 4.4950 0.0786* 0.0094*** 0.0039***
/ - 1 to / + 3 15.0310 2.4250 s 0.0180** 0.0190** 0.0103** 4.2549 3.2415 s 0.1788 0.0647* 0.0151**
/ - 1 to / + 4 13.1610 4.5014 s 0.0455** 0.0857* 0.0351** 6.2664 5.9736 0.0520* 0.0010*** 0.0027***
/-Ito/ + 5 2.5620 -1.5423 s 0.7170 0.2238 0.1798 -0.0540 -1.5423 0.9885 0.4993 0.9214
/ - 2 to / 8.9430 2.5445 s 0.2213 0.2774 0.6731 4.0717 0.6626 s 0.2654 0.7861 0.4419
/ - 2 to / + 1 7.9160 0.9397 s 0.2347 0.5889 0.3986 4.5190 4.5113 s 0.1669 0.1369 0.1198
/-2 to t + 2 16.4210 4.9919 s 0.0418** 0.1046 0.0523* 6.8608 4.7198 s 0.0741* 0.0582* 0.0173**
/ - 2 to / + 3 11.1840 4.9651 s 0.0352** 0.0355** 0.0808* 2.9840 4.9651 0.4303 0.0672* 0.1950
/ - 2 to / + 4 16.2650 2.7972 s 0.0527* 0.1046 0.1100 8.1112 4.7476 s 0.0352** 0.0304** 0.0131**
/ - 2 to / + 5 12.8490 2.7972 s 0.1115 0.4175 0.7985 5.5108 3.4816 s 0.1236 0.2796 0.1118
The mean and median abnormal performance improvements in percentages for sales-to-assets
* p < 0.1; ** p < 0.05; *** p < 0.01. The p values shown are those for the one-sided test of the null hypoth
Wilcoxon signed rank test, and sign test, respectively. Given that the hypothesis of normally distributed abnor
Shapiro-Wilk test at the 1 % level, the / test is never appropriate; but reported for the sake of completeness. In
certified firms in Table 1), this corresponds to a relative

performance mostly five, six, or seven years aft
decrease of 2 %. The abnormal performance improvements
tiates its preparation for ISO 14001 certificati
in S/A are presented in Table 6. As evident from
ingly, this table,
we believe that ISO 14001 can create a sign
none of the short-term abnormal performance improvements
term impact on profitability (ROA), internal im
are significant. On the other hand, some of the
(C/S), and cumulative
asset turnover (S/A), thereby provid
improvements are significant. For example, when
support considering
for hypotheses Hb H2, and H3.
í - 1 as the base year, the cumulative abnormal improve-
ments are significant in the years t -h 2, / + 3, and t + 4 (in
three of the matching methods); whenDiscussion,
consideringPost-Hoct - 2 as Analysis, and Limitati
the base year, the cumulative abnormal improvements are
Discussion
significant in the years / 2 and / H- 4 (in of Results
at least three of the
matching methods). Additionally, the magnitude of the longer
term effects is also considerably higher. Inresearch
Extant conclusion, the
that studies the impact of ISO 14001 cer-
results generally suggest that ISO 14001 certification impacts
tifications on publicly available financial performance
Springer
measures have
C/S (productivity) and S/Aestablish
(market performance), namely
impacts of ISO
the top- and certific
bottom-line. Though not significant, most of
2008). In contrast to
the cumulative improvements in the C/S the
(with base periods
by low of both t - 1 and t - 2)sizes
sample are negative and substantial.
and Thus,
we use a our results suggest that a firm's
sample of first ISO 219
14001 certification ce
sensitivitycould analysis
lead to immediate short-term improvements
invo in ROA
to evaluate the
by increasing perfor
productivity, as reflected by C/S. This further
substantiates the notion Additiona
certifications. that ISO 14001 can alter firms'
impacts of bottom-line
the performance. certifica
In other words, the bottom-line
years past improvements
certification)evident in our results suggest that ISO can
show that ISO
pay off, at least partially, in14001
the short run. On the other c
impact on hand, the magnitude
the of the increase in median cumulative
financial pe
(up to five abnormal
years performance in S/Apast
is considerably higher.
cer
adopted byComparing the four different matching methods,et
Corbett the rela- a
ISO 9000 tive increase in median S/A ranges from 1.5 to 8.5 %
certifications. I
on between t - 2 and
14001 ISO f + 4, and from 4 to 7.7 % between
certificatio
t - 1 and t + 4 in data,
performance comparison to the median starting
our value r
tifications of create
85.53 % in the matching year t - 2a
(please refer
signito the
median S/A value
performance. More in Table 1). impor
impact In contrast to an immediate significant
justifies the decrease in C/S,
not
facilitated the S/A increases
through in the long run instead. So, we clearly
ISO see
time to that top-line impact is substantial, Therefo
develop. though lagging when
formance compared to bottom-line improvements. This result sug-
measures, suc
run. gests that ISO 14001 certifications could also enhance the
As evident in Table 4, the cumulative abnormal imageper- of the firm, thereby increasing its sales in relation to
formance in ROA is much stronger in the years íits + asset
3, base. Another reason might be that a "positive"
perception on environmental management is lacking.
t + 4, and t - 1-5. The magnitude of the increase in median
cumulative abnormal performance in ROA is considerablyTherefore, firms must prove that they are consistently
sustainable before seeing any market-related benefits. Such
higher; for example, when looking across the four different
lagged benefits also provide further backup to the notion
matching methods. When compared to the median starting
that sustainability is not a matter of green washing. Overall,
value of ROA of 4.96 % in the matching year t - 2 (please
refer to the median ROA value in Table 1), the relative
our empirical results suggest that ISO certification could
increase in median ROA is found to range between lead
(1) to (1) immediate short-term improvements in the
0.7 %4 and 13 % between t - 2 and t + 4 and bottom-line
(2) performance of firms and (2) subsequent
0.4-3.4 % between t - 2 and t + 5. On the other hand,improvements
we in top-line performance over the long run.
Therefore,
point that the difference in mean abnormal performance in we conclude that ISO certifications could have
ROA is negative, considering t - 1 as the base improvements
year on both bottom-line and top-line perfor-
mance
(Please refer to Table 4). This intriguing result can be of firms.
attributed to positive improvements in ROA in the yearTo summarize, while the immediate productivity
immediately after the decision to achieve certification.improvements
But realized through implementation of ISO
14001
this improvement is significant only in one of the matching initiatives result in ROA improvements in the short
methods. run, the subsequent increase in sales seems to fuel ROA
improvements in the longer term. Our findings are not only
As a corollary, we attempt to explain the improvements
in direct
in ROA by looking at other performance measures, such as contrast to past studies that evaluate the impact of
ISO 14001 on objective corporate performance, but they
also clearly indicate that in comparison to non-certified
4 This relative increase in the median ROA value is calculated by
control firms with similar assets and performance, certified
taking the corresponding percentage value of 0.0354 % from Table 2
firms experience significantly better performance after
(i.e., the lowest for the period t - 2 to t - 4 across panels (a) through
(d) and dividing it by the median starting ROA value of 4.96 %. deciding
This to pursue their first ISO 14001 certification.
ratio (0.0354/4.96 = 0.007) is then converted to relative percentage Additionally, firms are able to make operational changes
increase by multiplying it by 100. In effect, we could say that at the
motivated by the standard, thereby leading to ROA
minimum, ROA went from 4.96 to 4.995 %. All the relative increase
in median values of ROA and other financial indicators were doneimprovements
in a not only through increased productivity, but
similar fashion. also through increased sales in relation to their asset base.
Springer
A closer examination of the

evaluate abnormal
different performance
portions of the overall financial health of
improvements of certifiedthefirms
certified firm after the
also ISO 14001 certification.
suggests that We an ISO
14001 certification cannot believe

help that such an inquiry
firms will helpsustainable
derive us present a more
nuanced
competitive advantage from the structure of the financial
outset; this impact
is on top- and bot-
acceptable,
tom-line
given the fact that ISO 14001 isperformance
a public aspects.standard
Tables 7, 8, and 9 show
like the ISO
results for
9000 and cannot by itself lead to ROS, ROE, and A/E respectively.
increased profitability.
When compared
However, given that firms across to the abnormalindustries
multiple performance in ROA,are
the abnormal performance
increasingly requiring ISO certification from in ROStheir
is slightly weaker.
suppliers
(Curkovic and Sroufe 2011),
Table 7achieving
reports the abnormalISO 14001
performance certifi-
improvements
cation can be considered a qualifying
in ROS criterion
along the four matching methods. Usingthat
the sign can
help firms improve their test,market
none of the short-term
(sales) abnormal performance
performance
improvements
through increased customer base, thereby are significant. Among the cumulative
improving long-
performance periods,the
term profitability. More importantly, significant improvements are found
requirements of an
ISO 14001 standard can help
between
firmst - 2 andidentify
/ + 4 (in at least three
and of the
eliminate
matching
waste from the productionmethods).
process,Table 8 reports
andthe abnormal performance
develop in
long-last-
ROE along
ing environmentally oriented the four matching
resource methods. The statistical
combinations and
tacit capabilities that canpatterns
create in ROE superior products
are much weaker than the patterns forand
ROA. When
processes, as well as improved considering t - 1 benefits
performance as the base year,
in thethe
long run. cumulative abnormal improvements are significant in the
year t - h 3 (in two of the matching methods) and t + 5
Post-Hoc Analysis (in two of the matching methods). When considering t -
2 as the base year, the cumulative abnormal improve-
We believe that ISO 14001 can have a significant long- ments are significant in the years t + 3 (in two of the
term impact on profitability (ROA), internal improvements matching methods) and ř + 4 (in two of the matching
(C/S), and asset turnover (S/A). However, a firm's profit- methods). However, the results in Table 8 show that
ability, asset turnover, and internal improvement are part of certified firms appear to provide their stockholders with a
a larger financial picture; these ratios are either directly or positive return on their equity in the third year after
indirectly connected through well-defined financial rela- certification. For example, when comparing the improve-
tionships. For example, profitability (ROA) also could be ments in the case of cumulative performance for period
seen as a combination of the firm's operating profit margin t - 1 and /4-3, the largest relative median abnormal
(ROS) and asset turnover (S/A); therefore, the change in ROE increase of 2.8 % starting with a median ROE of
performance might stem from these two ratios as well. 12.12 % in t - 2 (see Table 1) translates to an increase of
Accordingly, we investigate the effect of ISO 14001 cer- 23 %.
tification on financial measures not directly covered in our Table 9 reports the abnormal performance improve-
initial analysis to provide further insight to practitioners. ments in A/E. Though not significant, immediately after the
Another frequently discussed financial ratio is the return on decision to be certified, the mean and median abnormal
equity (ROE) - a measure of the top-line - which captures performance in A/E is lower in almost all matching
a corporation's profitability by revealing how much profit a methods (i.e., the abnormal performance changes are in the
company generates with the money shareholders have right direction). The non-significant abnormal A/E values
invested. Another financial relationship, known as the imply that certified firms are able to maintain relatively
Dupont analysis, defines ROE as a combination of profit similar levels of debt with regards to their assets in com-
margin (ROS), asset turnover (S/A), and financial leverage parison to their counterparts. The main difference between
(measured as assets divided by equity - A/E).5 ROA (profitability) and ROE (stockholder's return on
As a post-hoc analysis, we evaluate the effect of ISO equity) is a firm's level of debt, measured by A/E (financial
14001 certification on three additional financial ratios - leverage), But given that A/E changes are non-significant,
ROE, ASSETS/EQUITY (A/E), and NET INCOME/ the similar cumulative increases in the ROE and ROA
SALES (ROS) - and examine whether certified firms seem to be precipitated by profit margin (ROS) and asset
experience abnormal performance improvements along turnover instead. For example, comparing the improve-
these financial ratios More importantly, we desired to ments between / - 2 and t + 4, the increases in ROE
(Table 8) and ROA (Table 4) are closely related to the
5 Financial leverage is a measure of the total debt a company takes to
cumulative increases in the profit margin (Table 7), and
acquire assets. Profit margin (ROS) is calculated by dividing net asset turnover (Table 6). Based on these results, we con-
income over sales.
clude that ISO certifications could have sufficient long-
Springer
Table 7 Abnormal perform

median (/ test) (WSR) (sign lest) median ( / test) (WSR) (sign test)
/ - 3 to / - 2 14.9040 -0.0874 s 0.8967 0.8925 0.2840 -42.6110 -1.4022 s 0.5813 0.0018*** 0.0003***
/ - 2 to r - 1 55.2000 -0.0375 0.3831 1.0000 0.9121 112.2620 1.3714 s 0.2098 0.0148** 0.0020***
/-Ito/ 97.6180 0.1715 s 0.2599 0.3258 0.5000 164.0600 0.7255 s 0.0682* 0.2108 0.2048
/to/+l -193.8540 0.0000 s 0.1100 1.0000 0.8383 -101.5660 0.1750 s 0.34% 0.4892 0.3223
/ - 1 to / H- 1 -95.3480 0.6749 s 0.2566 0.0872* 0.2802 62.3170 1.7621 s 0.3727 0.0296** 0.0020***
/-Ito / + 2 -67.8860 -0.1974 s 0.4375 0.8383 0.5916 166.1280 1.4385 s 0.2205 0.0773* 0.0016***
/ - 1 to / + 3 -47.5380 0.6189 s 0.5818 0.3052 0.1209 -28.9270 0.9260 0.5542 0.2217 0.2420
/_lto / + 4 83.6890 0.7043 s 0.5268 0.1157 0.1025 82.4330 1.3339 s 0.3355 0.1744 0.1384
/ - 1 to / + 5 -43.5620 0.0212 s 0.6924 0.8925 0.5728 77.5810 0.0795 s 0.3888 0.8925 0.7614
/-2 to/ 152.5300 0.2399 s 0.1851 0.5837 0.6696 277.3110 2.4246 s 0.0197** 0.0007*** 0.0006***
/ - 2 to / H- 1 -40.1480 0.8269 s 0.7250 0.2238 0.1985 174.5790 2.7899 s 0.1002 0.0000*** 0.0000***
/ - 2 to / + 2 -12.6860 0.0672 s 0.9139 0.8925 0.4591 278.3910 3.1248 s 0.0797* 0.0000*** 0.0000***
/-2 to/ + 3 22.5660 0.6271 s 0.5473 0.5423 0.6154 40.7240 1.1098 s 0.2214 0.2495 0.3273
/ - 2 to / 4- 4 138.8890 0.7653 s 0.3765 0.0582* 0.0995* 194.6950 1.9193 s 0.0751* 0.0004*** 0.0003***
/ - 2 to / + 5 -48.8100 0.2399 s 0.6707 0.2796 0.4115 129.2520 1.1489 s 0.2171 0.0067*** 0.0169**
(b) One-to-one matching by industry, ROA, assets (d) Portfolio matching by industry,
/ - 3 to / - 2 19.5850 -0.4035 s 0.8644 0.3442 0.1341 -51.3680 -0.8089 s 0.4799 0.1045 0.0923*
/ - 2 to / - 1 50.1730 -0.2296 s 0.4274 0.5889 0.5754 104.5590 0.4447 s 0.2181 0.0787* 0.0901*
/-Ito/ 16.7070 0.0000 s 0.5036 0.6753 0.4138 111.3100 0.0000 s 0.1655 0.6768 0.6967
/ to / -h 1 -114.3110 -0.2800 s 0.2040 0.3674 0.8361 -56.3930 0.2054 s 0.5356 0.4066 0.3979
/ - 1 to / 4- 1 -96.4970 0.6749 s 0.2507 0.0330** 0.0546* 54.7740 1.2199 s 0.3044 0.0202** 0.0353**
/_lto / + 2 -94.6480 0.0000 s 0.2594 1.0000 0.6349 133.3430 0.3621 s 0.2116 0.5855 0.2546
/-Ito /+ 3 -72.0350 1.6424 s 0.3927 0.1297 0.0449** -16.0760 1.1782 s 0.6919 0.1157 0.3855
/_ ito / + 4 -62.5030 0.6925 s 0.4686 0.2429 0.0979* -6.4250 1.4162 s 0.8904 0.1724 0.3318
/_lto / + 5 -39.9900 0.3175 s 0.7165 0.7870 0.8493 60.1790 -0.4971 s 0.4763 0.5889 0.1919
/-2 to/ 67.7780 0.7522 s 0.3846 0.5855 0.4776 216.8220 1.0544 s 0.0494** 0.0659* 0.0685*
/ - 2 to / -h 1 -46.3240 0.4863 s 0.6846 0.5889 0.2424 159.3330 1.9349 s 0.0911* 0.0001*** 0.0001***
/ _ 2 to / -H 2 -44.4750 0.3775 s 0.6975 0.5889 0.5278 237.9020 1.5351 s 0.0731* 0.0011*** 0.0045***
/ - 2 to / + 3 -2.2770 -0.2352 s 0.9438 0.6355 0.9098 37.1150 0.2089 s 0.2550 0.8391 0.7187
/_2to/ + 4 -12.3300 0.7105 s 0.9175 0.1369 0.1064 98.1330 1.3575 s 0.2272 0.0018*** 0.01%**
/ - 2 to / + 5 -50.0690 0.5035 s 0.6627 0.2796 0.2196 104.3450 0.4260 s 0.2840 0.1764 0.5044
The mean and median abnormal performance improvements in percentages for ROS (return on sales; net income/sales)
* p < 0.1; ** p < 0.05; *** p < 0.01. The p values shown are those for the one-sided test of the null hypothesis of no ab
Wilcoxon signed rank test, and sign test, respectively. Given that the hypothesis of normally distributed abnormal performa
Shapiro-Wilk test at the 1 % level, the / test is never appropriate; but reported for the sake of completeness. In cases where sk
their ROAmeasures
term positive impact on other top-line financial relative to the control firms even before decid-
such as ROE and ROS as well. ing to achieve certification. If prior superior performance
was the reason for future abnormal ROA improvements,
Alternative Explanations the abnormal performance between t - 3 and t - 2 must
be positive and significant. But, as evident from Table 4,
Even though our results support the long-term impactthe of mean and median abnormal performances between t -
ISO 14001 certifications, we cover some of the key alter- 3 and t - 2 are all negative. The mean abnormal perfor-
mances are all significant at or above the 95 % confidence
native explanations for our results. For the sake of brevity,
we restrict our discussion to the abnormal performance level; two of the median abnormal performances are sta-
tistically significant (p < 0.01), while one of the median
differences in ROA. As discussed by Corbett et al. (2005),
abnormal performances is marginally significant
the first possibility of certified firms showing improved
( p < 0.10). Additionally, if certified firms already were
performance after deciding to achieve ISO 14001 certifi-
performing better than control firms, they could also
cation could be due to fact that these firms were increasing
Springer
Table 8 Abnormal performance in ROE

median (/ test) (WSR) (sign test) median (/ test) (WSR) (sign test)
/ - 3 to / - 2 19.1210 0.2287 s 0.0891* 0.4993 0.6976 14.6490 -1.4185 s 0.5206 0.0252** 0.0269**
/ - 2 to r - 1 -2.1450 0.3126 s 0.9489 0.4993 0.3989 22.4120 1.9312 s 0.2271 0.0120** 0.0857*
/-Ito/ 0.8690 0.0000 s 0.9774 0.4871 0.9751 -15.0940 0.3320 s 0.1893 0.4043 0.2536
/ to / + 1 3.6040 0.0000 s 0.5684 0.9450 0.8552 13.5110 0.0000 s 0.2888 0.7821 0.7426
/ - 1 to / 4- I 4.4740 1.3213 s 0.8882 0.3052 0.3895 -1.5830 1.9788 0.9119 0.0659* 0.1952
/-Ito /+2 -12.8830 0.3018 s 0.7668 0.8383 0.4426 -44.3670 3.5469 s 0.2085 0.0347** 0.0114**
/-Ito /4- 3 23.9140 1.3513 s 0.4673 0.1157 0.0789* -10.5740 1.3017 s 0.3372 0.1174 0.1576
/ - 1 to / + 4 -4.3170 1.7028 s 0.8993 0.2451 0.3361 -19.2950 0.6791 s 0.1626 0.7338 0.3343
/_lto /+ 5 -8.3720 0.2226 s 0.7843 1.0000 0.2099 -26.7970 -0.1926 s 0.0180** 0.7350 0.3511
/ - 2 to / -1.2760 1.7031 s 0.8702 0.2774 0.1996 7.3180 3.9462 s 0.5512 0.0043*** 0.0075***
/ - 2 to / + 1 2.3280 1.5059 s 0.7788 0.2796 0.1207 20.8290 3.5342 s 0.1338 0.0005*** 0.0008***
/ - 2 to / + 2 -15.0290 0.7782 s 0.6284 0.3442 0.3778 -21.9550 5.1543 s 0.5419 0.0000*** 0.0001***
/-2to/+ 3 40.8900 1.5586 s 0.0126** 0.3787 0.0380** 26.4850 1.3026 s 0.0976* 0.4973 0.4565
/ - 2 to / + 4 -6.4620 1.3593 s 0.6916 0.3442 0.1886 3.1160 2.5597 s 0.8252 0.0035*** 0.0191**
/ - 2 to / + 5 -2.5170 0.6649 s 0.7355 0.4175 0.4188 3.3790 1.8427 s 0.7803 0.0493** 0.0794*
(b) One-to-one matching by industry, ROA, assets (d) Portfolio matching by indust
/-3 to/ - 2 26.4640 0.6797 s 0.0354** 0.4175 0.3678 7.8640 -0.9322 s 0.6541 0.1548 0.1589
/ - 2 to / - 1 -6.3060 -0.1103 s 0.8505 1.0000 0.7393 19.2520 0.6952 s 0.2868 0.4563 0.3688
/-Ito/ -4.7040 0.0000 s 0.8796 1.0000 0.5964 -18.2550 -0.1241 s 0.0687* 0.4871 0.3399
/ to / -h 1 16.4020 0.1339 s 0.0267** 0.5347 0.1912 21.1490 1.6988 s 0.0941* 0.0377** 0.0141**
/ - 1 to / H- 1 11.6980 2.6458 s 0.7123 0.0160** 0.0315** 2.8940 1.5441 s 0.8328 0.0872* 0.1113
/ - 1 to / -f 2 -17.1150 1.1025 s 0.6886 0.1704 0.2870 -43.1820 1.5087 s 0.1791 0.1157 0.2673
/-Ito /+ 3 10.3600 2.8020 s 0.7396 0.0190** 0.0161** -10.1040 1.9031 s 0.3083 0.0281** 0.1046
/-Ito / + 4 1.0930 1.5098 s 0.9745 0.1918 0.0475** -15.3670 1.9304 s 0.2145 0.3052 0.1981
/-Ito / + 5 -9.4170 -2.0151 s 0.7589 0.0787* 0.0916* -27.6150 -3.3976 s 0.0086*** 0.0014*** 0.0016***
/ - 2 to / -11.0110 -0.0468 s 0.2304 0.8920 0.5274 0.9970 0.0000 s 0.9345 1.0000 0.9408
/ - 2 to / -f 1 5.3920 0.9386 s 0.5024 0.4175 0.1239 22.1460 3.1568 s 0.1122 0.0493** 0.0012***
/ - 2 to / + 2 -23.4210 0.7181 s 0.4356 0.6853 0.9378 -23.9300 2.1299 s 0.4685 0.0493** 0.0708*
/ - 2 to / + 3 30.5180 2.6085 s 0.0229** 0.2495 0.0291** 17.0120 -0.0201 s 0.1065 1.0000 0.7297
/ - 2 to / + 4 -5.2130 1.4304 s 0.7487 0.2238 0.1870 3.8840 1.8147 s 0.7789 0.0493** 0.0270**
/ - 2 to / + 5 -7.3760 0.1720 s 0.3464 0.7870 0.7993 -0.3760 0.4876 s 0.9750 0.8391 0.8718
The mean and median abnormal performance improvements in percentages for ROE (return on equity)
* p < 0.1; ** p < 0.05; *** p < 0.01. The p values shown are those for the one-sided test of the nu
Wilcoxon signed rank test, and sign test, respectively. Given that the hypothesis of normally distribu
Shapiro-Wilk test at the 1 % level, the / test is never appropriate; but reported for the sake of complet
exhibit lower C/S and higher S/A. does not explain

However, inthe significant longer term abnormal
comparison
performance
to control firms, the C/S for certified experienced
firms by certified firms after their
are higher
between t - 3 and / - 2 across all matching
decision to pursue ISO methods
certification.
(please refer to Table 5). Similar results are evident in the
Limitations and Future
case of S/A as well; though not significant, the Research
mean and
median abnormal performance for S/A is lower (negative)
for certified firms between t - 3 and / - 2 across all
As illustrated in the results section, we did not find evi-
matching methods (please refer to Table 6). Based on these
dence for a consistent abnormal performance improve-
results, we can clearly see that certified firms were actually
ments immediately after the decision to pursue ISO 14001
performing worse than control firms in the year before certification
their or immediately after receiving certification.
Specifically, certified firms do not realize consistent
decision to pursue the ISO 14001 certification. Therefore,
we can safely conclude that prior superior performanceabnormal performance improvements in the first four years
Springer
Table 9 Abnormal performa

median ( / test) (WSR) (sign test) median ( / test) (WSR) (sign test)
/-3 to/- 2 -39.8070 1.5400 s 0.4017 0.7870 0.3251 7.9430 9.8890 s 0.9147 0.0003*** 0.0011***
/ - 2 to / - 1 12.1930 -0.5240 0.6104 0.7870 0.9501 -18.2830 -3.7340 s 0.5233 0.3097 0.8571
/-Ito/ 45.6030 -1.2470 s 0.3176 0.2661 0.6810 -14.4010 0.0000 s 0.7518 0.6768 0.5511
/to/+l 26.3440 1.2620 s 0.6038 0.3006 0.9680 -5.4870 2.1780 s 0.9174 0.3329 0.5181
f-ltof+ 1 -19.2590 -2.8300 s 0.5370 0.3742 0.2220 -19.8880 4.5540 s 0.5034 0.4543 0.2220
/_ ito /4- 2 264.1210 -2.7910 s 0.3572 0.6340 0.4349 278.2430 -10.8420 s 0.3410 0.3074 0.5182
, _lt0/ + 3 -35.8930 -11.3800 s 0.3791 0.0647* 0.1070 -19.7080 -15.2620 s 0.5258 0.0245** 0.1795
,-lto/ + 4 -13.8360 -3.3700 s 0.8291 0.3742 0.7140 -6.3450 -5.1620 0.8847 0.2473 0.5330
f-ltof + 5 -58.9580 -5.1220 s 0.1223 0.1369 0.3536 -31.9580 6.6660 s 0.3974 0.8391 0.5800
,_2 toi -33.4100 0.0000 s 0.5020 1.0000 0.8359 -32.6840 -5.3590 s 0.5273 0.3419 0.9618
/ - 2 to / 4- 1 -7.0660 -2.2600 0.8287 0.8925 0.7047 -38.1710 -4.2010 0.2631 0.5423 0.1858
f - 2 to f + 2 276.3140 -1.5690 s 0.3402 0.7870 0.785 259.9600 -0.6630 s 0.3787 0.9460 0.3836
/ - 2 to / 4- 3 -63.5070 -2.1340 s 0.3312 0.9460 0.2795 -30.0480 -6.4920 s 0.7007 0.4973 0.4519
2to/ + 4 -1.6430 6.9900 s 0.9807 0.3442 0.5888 -24.6280 -14.3070 0.6298 0.2495 0.2747
t - 2 to / 4- 5 -35.9820 -3.3070 s 0.3339 0.6853 0.6358 -44.5580 -8.4220 s 0.2969 0.3787 0.6818
(b) One-to-one matching by industry, ROA, assets (d) Portfolio matching by industry, ROA, asset
t - 3 to t - 2 -24.0180 2.5890 s 0.6262 0.4175 0.5617 -15.5440 6.0252 s 0.8077 0.0493** 0.1700
/ - 2 to / - 1 -10.7450 1.4190 s 0.7965 0.6853 0.4124 0.9140 -1.3530 s 0.9776 0.9460 0.8349
/ - 1 to / -27.6370 0.0000 0.7336 0.5783 0.7945 -21.0430 -3.6276 s 0.6628 0.4043 0.7679
/ to / 4- 1 -15.8470 0.0000 s 0.8583 0.8361 0.7784 -30.0740 0.0000 0.6482 0.7821 0.5111
Ito /4-1 -43.4840 -1.7900 s 0.2869 0.5366 0.1632 -51.1170 -5.6346 0.2322 0.3742 0.0309**
t - ' to t + 2 175.1230 0.0000 s 0.5594 0.8910 0.9233 221.5820 0.0000 s 0.4492 0.9455 0.6294
,_lto/ + 3 11.2930 0.0000 0.7462 0.8905 0.9772 2.6520 -8.6447 0.9332 0.1704 0.3018
/ - 1 to / 4- 4 18.6520 0.0000 s 0.7633 0.9453 0.9170 -13.6150 4.2092 s 0.7813 0.6324 0.5032
, _ ito /4- 5 33.4300 -3.7970 s 0.5656 0.4175 0.5779 1.8750 -1.8466 s 0.9649 0.8391 0.9162
/ - 2 to / -38.3820 3.8090 s 0.6542 0.4154 0.7048 -20.1290 -4.8898 s 0.7001 0.3765 0.6177
/ - 2 to / 4- 1 -54.2290 -1.7340 s 0.1889 0.6853 0.9716 -50.2030 -7.8262 0.2728 0.0672* 0.0937*
/ - 2 to / 4- 2 164.3780 1.7930 s 0.5871 0.8925 0.4365 222.4960 -3.8762 s 0.4518 0.6355 0.7331
/ - 2 to / 4- 3 -23.4700 11.2600 s 0.6877 0.1980 0.5025 -11.9780 -3.2475 s 0.8559 0.6839 0.8070
/ - 2 to / 4- 4 7.9080 6.2260 s 0.9022 0.2796 0.3063 -12.7010 -4.8072 0.8072 0.1548 0.5811
/-2 to/ -h 5 30.6870 5.3070 s 0.6069 0.5889 0.5488 5.8040 2.6814 s 0.9021 0.7350 0.7331
The mean and median abnormal performance improvements in percentages for assets to equity
* p < 0.1; ** p < 0.05; *** p < 0.01. The p values shown are those for the one-sided test of the null hypothesis of no abnorm
using a / test, Wilcoxon signed rank test, and sign test, respectively. Given that the hypothesis of normally distributed abnormal
rejected in all cases by the Shapiro-Wilk test at the 1 % level, the / test is never appropriate; but reported for the sake of com
where skewness is substantial, the sign test is appropriate, otherwise the WSR test could be used
following the decision to pursue certification (i.e.,in enhancing

from the the environmental attributes of products and
base year of t - 2). Instead, with respect to base processes,
years t - firms that are already certified to the ISO 9000
standard may have less room for process-related
1 and t - 2, certified firms seem to realize improvements
improvements
in abnormal performance only in the longer term (i.e., that are focused on quality and waste
/ + 3, t 4- 4, and/or / 4- 5). Though these resultsreduction.
could be Accordingly, could the existence of prior ISO
9000
attributed to the fact that it takes a long time to certification explain the lack of improvements in
develop
environmentally oriented capabilities that can engenderperformance in the short term? Unfortunately,
abnormal
due to rule
superior performance benefits, we did not empirically the lack of data, we were not able to specifically test
out the notion that many firms that seek ISO 14001 certi-effect. More evidence on the interaction between
for this
these
fications could have already attained the ISO 9000 two certification standards is needed to categorically
quality
certification. Though the ISO 14001 certificationdetermine
is unique whether prior ISO 9000 certifications could
Springer
negate the low-hanging benefits that

firms certified under could
this standard. beit achieved
Therefore, is impor-
during the implementation
tant to use astages of
larger sample and the
more ISO
rigorous 14001
methods to
standard. clearly establish the short- and long-term impacts of this
global standard. With
We now discuss other limitations of this
ourambition
studyin mind,with
we study the
the
short- and long-term
ambition of providing directions impact of the research.
for future ISO 14001 certification
First,
on financial performance
in our study, we match site-level ISO 14001 using a comprehensive dataset
certifications
that includes
with corporate-level financial a majority of ISO 14001 As
performance. certifications
financialin the
Unitedat
performance is measured only States.
the Our results clearly suggest
corporate that thethis
level, ISO is
not a major problem; moreover,
14001 certification as indicated
process by
can help firms develop past
firm-
research, it makes our tests much more conservative specific capabilities that will have a significant impact on
(Corbett et al. 2005). In addition to studying the impact on the profitability of the certified firms. Specifically, a bot-
financial performance measures from Compustat, future tom-line impact emerges after a shorter period than does a
studies also could survey the certified firms to test the top-line impact. Our post-hoc analysis also shows that the
impact of this certification on self-reported environmentalcertification could create a significant impact on other top-
and operational performance measures. Such an effort also line financial measures only in the long-term. However,
will help isolate various contextual factors that areboth bottom-line and top-line impacts are significant, thus
important in explaining the relationship between certifica-making ISO 14001 certification a solid means to improve a
tion and performance. Second, given the lack of avail-firm's financial performance. At the same time, it is
ability of a complete list of ISO 14001 certified firms, weimportant to understand that only firms that implement this
used three different sources to compile our final sample ofstandard in a rigorous and comprehensive manner so as to
certified firms. Though our study includes around 80 % of identify and develop tacit, socially complex organizational
the certified firms, we recommend future studies to includecapabilities will reap long-standing benefits through ISO
the entire sample of ISO 14001 certified firms within the14001 certification.
US and validate our results. Third, we include only U.S.-
based manufacturing firms in our sample. The findings do
not apply to non-U.S. manufacturing firms. Therefore, we
recommend future studies to include certified firms from a
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The Financial Impact of ISO 14001 Certification Top-Line, Bottom-Line, or Both

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The Financial Impact of ISO 14001 Certification: Top-Line, Bottom-Line, or Both?

Author(s): Pieter de Jong, Antony Paulraj and Constantin Blome

The Financial Impact of ISO 14001 Certification: Top-Line,

Pieter de Jong * Antony Paulraj • Constantin Blome

financial benefit remains widely unanswered. In particular,

the underlying processe

issues and inefficiencies, evaluate their interactions

With its 1999;

mance medians of the

Firm attribute Full sample (219 firms)

Total assets 1.41 750507.00 12320.23 2018.19 54852.99

ROA -113.8261 39.2185 1.7368 4.9565 16.0459

Tobin's Q 43.5373 1400.7326 197.2371 152.0728 166.0133

Assets/equity -1202.0444 2315.3964 246.4500 216.4966 271.1055

Firm attribute Control sample (219 firms; by industry, ROA)

Total assets 0.43 159738.00 4132.29 176.26 18322.13

Total assets 0.43 194484.00 7030.20 1339.52 19046.62

Table 3 Descriptive analysis

Firm attribute Control sample (219 firms; by industry, ROA)

Total assets 5.87 143938.00 4140.73 1032.24 13777.86

ROA -79.3667 42.6075 2.7748 5.3417 14.5144

Return on sales -1031.7019 42.7103 -18.1943 5.8609 109.2667

Tobin's Q 59.2631 770.0672 214.0622 177.3835 117.8777

Assets/equity -3416.3022 1440.6072 197.1124 194.5590 308.0481

Total assets 5.87 194484.00 7112.46 1846.69 18735.83

to-one firm match, based

Table 4 Abnormal performance in ROA

Period AP mean AP sk p value p value p value AP AP sk p value p value p value

Table 5 Abnormal performa

Period AP mean AP sk p value p value p value AP mean AP sk p value p value p value

significant in the years t + 1 , t + 4, and ícumulative abnormal improvements are significant

Table 6 Abnormal performance in sales-to-assets

Period AP AP sk p value p value p value AP AP sk p value p value p value

certified firms in Table 1), this corresponds to a relative

A closer examination of the

14001 certification cannot believe

Table 7 Abnormal perform

Period AP mean AP sk p value p value p value AP mean AP sk p value p value p value

Table 8 Abnormal performance in ROE

Period AP mean AP sk p value p value p value AP mean AP sk p value p value p value

exhibit lower C/S and higher S/A. does not explain

Table 9 Abnormal performa

Period AP mean AP sk p value p value p value AP mean AP sk p value p value p value

following the decision to pursue certification (i.e.,in enhancing

negate the low-hanging benefits that

Conover, W. King, A.J.

Russo, M. V., & Harrison, N. S.Verkataraman,

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