Do Quality and Environmental- Related Standards Improve French Firms’ Business Performance? Gilles Grolleau Naoufel Mzoughi Sanja PEKOVIC COINVEST Conference Lisbon, 18th and 19th March

Outline 1- Introduction 2- Data and model specification 3- Results 4- Conclusion

1- Introduction  A quality standard (QS) is an organizational process involving changes in the fundamental behavior and applied routine of employees that ensures that the quality of goods and services provided by an organization meets customers’ demands and regulatory requirements.  An environmental-related standard (ES) requires that an organization implements a set of environmental practices and procedures which ensures that risks, liabilities and impacts are properly identified, minimized and managed (Darnall et al., 2000).

 QS are likely to increase firms’ competitiveness by lowering defect rates, reducing cost of quality, and increasing productivity, on-time delivery and customer satisfaction.  Similarly, organizations implementing an ES are likely to gain competitive advantage. An ES may help a firm to detect and eliminate inefficiencies in resource use.  However, it should be noticed that several scholars suggest that QS/ES implementation is costly, and as such, decreases firms’ competitiveness (Konar and Cohen, 2001; Corbett et al., 2005).  Empirically, the issue of whether QS and ES have a positive or negative impact on business performance (and the level of this influence) is far from being resolved. 1- Introduction

 Literature Review- Positive set of arguments for Quality Standards: Benner and Veloso (2008) Lo et al. (2008) Terlaak and King (2006) (1999) Corbett et al. (2005, see also Simmons and White, 1999).

1- Introduction  Literature Review- Negative set of arguments for Quality Standards: Martinez-Costa et al. (2008) McGuire and Dilts (2007) Lima et al. (2000) Terziovski et al. (1997)

 Literature Review- Positive set of arguments for Environmental Standards: Darnall et al. (2008) Konar and Cohen (2001) Khanna and Damon (1999) 1- Introduction

Hypotheses  H1: Quality and environmental-related standards improve firm’s business performance, ceteris paribus.  H2: Because of their complementarity, quality and environmental-related standards are more likely to increase business performance when implemented together than when only one of these standards is implemented, ceteris paribus.

 The research is based on the Organizational Changes and Computerization Survey (COI 2006).  We worked with a sample of firms with more than 20 employees. 2- Data and model specification 2.1- Data

 TURNOVER and PROFIT- two continuous variables.  QS is binary variable that equals to 1 if the firm was registered according to a quality standard such as the ISO 9001 standard and French quality standard EAQF in  ES is equal to 1 if the firm was registered according to ISO standard, organic labeling or fair trade, in  QSES is equal to 1 if the firm had both a quality and environmental-related standards in 2006, and 0 if it was registered according to only one of them.

2- Data and model specification 2.2-PS Matching  Let T be a dummy variable indicating whether the firm receives (T=1) or not (T=0) the treatment.  y1 is the business performance of the treated firms.  y0 is the business performance of the non-treated firms

2- Data and model specification 2.2-PS Matching Example : Quality registered firms vs. Non Quality registered firms. T = 1 if the firm is a Quality registered and 0 if the firm is a Non Quality registered. y1 is be the (logarithm of the) turnover per employee of Quality registered firms, and y0 is be the (logarithm of the) turnover per employee of Non Quality registered firms.

2- Data and model specification 2.2-PS Matching  Thus three quantities are of interest to us:  C=E [y1-y0] is the average treatment effect over the whole population;  C1 = E [y1-y0 | T = 1] is the average treatment effect over treated firms  and C0 = E [y1-y0 | T = 0] is the average treatment effect over non- treated firms.

Table : Determinants of QS/ES QSES QSES VariablesEstimatez-value Marginal effect Estimatez-value Marginal effect Estimatez-value Marginal effect Intercept-0.98*** *** SIZE SMEDIUM *** *** MEDIUM0.54*** ***0.99*** ***0.56** * BIG1.43*** ***1.20*** ***0.88*** *** GROUP0.30*** ***0.54*** *** NETWORK *** *** EXPORT0.40*** ***0.37*** *** RELOCATION0.40*** *** *** *** CUSTOMER1-0.28** **2.11*** *** CUSTOMER2-1.08*** ***0.92*** ***-0.33** * Max Rescaled R2 -2 log L -2 log L (Intercept only) Likelihood ratio Percent concordant Number of observations Number of registered firms

. Table : PS-matching estimatesa Global TreatedNon-treated Logarithm of turnover per employee QSES0.14***0.15***0.14*** QS0.09***0.06**0.12*** ES0.20***0.18***0.20*** Logarithm of profit per employee QSES0.24***0.21***0.26*** QS ES (*) and (***) indicate parameter significance at the 10 and 1 per cent level, respectively. a: The standard deviation of the treatment effect is computed using bootstrap with 100 simulations. QSES (TURNOVER) min=4807; max=5986; mean= QS (TURNOVER) min=6283; max=6728; mean= ES (TURNOVER) min=2546; max=4001; mean= QSES (PROFIT) min=4765; max=5976; mean= QS (PROFIT) min=6199; max=6712; mean= ES (PROFIT) min=2704; max=3989; mean=

3- Conclusion Using a propensity score matching method, this article offers a refined analysis of the link between QS/ES and business performance among French firms. First, we have shown that quality and environmental-related standards contribute to the improvement of French firms’ business performance, by increasing their turnover but not profit. Second, we have shown that quality and environmental-related standards are more likely to improve business performance when implemented together than when only one these standards is implemented. This result points out the synergy between ES and QS.

3- Conclusion  This result also suggests that, in terms of profit and turnover increase, firms could have vested interest in implementing both standards that have public attributes and those which are mainly privately- oriented. From the public authorities’ point of view, it would be also more effective to encourage and help firms to implement both quality and environmental- related standards in order to increase the competitiveness of their fellow firms.

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