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

TLDR

The study examines long‑run stock price performance of firms with effective Total Quality Management (TQM) programs. The authors use quality award winners as a proxy for effective TQM and compare their five‑year stock price performance to matched control groups during implementation and post‑implementation periods. Award winners show no performance difference during implementation but outperform controls by 38–46% in the post‑implementation period, indicating that effective TQM implementation generates significant wealth and validates the value of quality award systems.

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.