The Impact of High-Quality Firm Achievements on Shareholder Value: Focus on Malcolm Baldrige and J....

The Impact of High-Quality Firm Achievements on Shareholder Value: Focus on Malcolm Baldrige and J. D. Power and Associates Awards

Siva K. Balasubramanian Ike Mathur Southern Illinois University

Ramendra Thakur Utah Valley State College

Marketing managers face increasing pressure to justify any strategic action with financial metrics that facilitate comparative evaluations with alternative options. Using event study method, the authors focus attention on the impact of high-profile quality achievement awards on the stock prices of the award-winning firms. Two types of awards are investigated: the Malcolm Baldrige National Quality Award (MBNQA ) and J. D. Power and Associates Awards (JDPAA). Previous event studies found no major impact of MBNQA announcements on the stock price of MBNQA winners; in contrast, this study's results show that these awards generate significant shareholder value for MBNQA winners. With respect to the JDPAA, the authors "analyses did not find any such impact in the Automo- tive, Travel, and Finance categories. Multiple regression analyses suggest that firms with higher amounts of intangible assets are more likely to create shareholder value. Implications of the results for different decision horizon perspectives are derived.

Keywords: high-quality awards; financial impact; shareholder wealth; J. D. Power and Associ- ates; Malcolm Baldrige National Quality Award

Journal of the Academy of Marketing Science. Volume 33, No. 4, pages 413-422. DOI: 10.1177/0092070305277691 Copyright �9 2005 by Academy of Marketing Science.

Many companies have been disappointed by a lack of results from their quality efforts. The financial benefits of quality, which have been assumed as a matter of faith in the "religion of quality," are now being seriously questioned by cost-cutting executives, who cite the highly publicized financial fail- ures of some companies prominent in the quality movement. In this increasingly results-oriented environment, managers must now justify their quality- improvement efforts financially.

--Rust, Zahorik, and Keiningham (1995:58)

Corporations face increasing pressure to subject any strategic action they initiate to rigorous financial analysis, particularly in terms of the impact generated on their own shareholder value and the shareholder value of competing firms. As Rust et al. (1995) imply above, one cannot justify the investment of significant resources to improve quality with general notions such as "quality is important" or "our customers will be pleased." A dramatic conse- quence of this theme for the marketing discipline is the rapid shift in managerial focus from traditional performance metrics (e.g., brand awareness goals or brand atti- tude benchmarks) to more objective new measures that are amenable to financial interpretation (e.g., return on investment or ROI).

There are several advantages associated with this new focus. First, the increasing use of financial performance metrics provides top management useful common

414 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE FALL 2005

denominators to evaluate competing requests for resources. Second, it forces executives to choose and justify an appropriate horizon to evaluate the performance of a project that seeks a resource investment now, for example, a time window within which the resources invested in the project must be recouped. Finally, as with most con- crete goals, financial measures facilitate benchmarking to gauge continuous improvement efforts. It is heartening that the marketing literature reflects this growing empha- sis on financial metrics to evaluate strategic marketing actions (e.g., Chaney, Devinney, and Wirier 1991; Lane and Jacobson 1995; Mathur and Mathur 1996) and other key marketing constructs (e.g., Aaker and Jacobson 1987; Pauwels et al. 2004; Simon and Sullivan 1993; Srivastava, Fahey, and Christensen 2001; Srivastava, Sherwani, and Fahey 1998).

In this study, we use the event study research method to evaluate financial outcomes that firms derive after public recognition of their quality improvement efforts. We adopt a shareholder value perspective to benchmark financial performance and limit attention to quality improvement efforts that are externally validated (i.e., recognition of these efforts following a rigorous competitive review process) and in the public domain (i.e., information about the quality achievement and related recognition is readily accessible to the public). Specifically, we focus attention on firms that won the following highly prestigious quality awards: Malcolm Baldrige National Quality Award (MBNQA) and the J. D. Power and Associates Awards (JDPAA). The former awards are very competitive and serve as a national symbol of quality excellence as judged by knowledgeable experts through an elaborate, multi- step review process. In contrast, the JDPAA awards are more consumer-centric in character when it comes to judging quality. They are awarded solely on the basis of survey responses from consumers and business-to- business customers who have used the products and services being rated.

Our research focus on product quality is motivated by two considerations. First, quality is an integral part of a key element in the 4P's of marketing, that is, the product. Thus, managing quality in a manner that best serves the needs of both the firm and its customers is vital to the marketing enterprise. Second, our work presents an opportunity to resolve some of the inconsistencies in findings of past studies. For example, the National Institute of Stan- dards and Technology (NIST Stock Investment Study 1997, 1998, 1999, 2000, 2001, 2002, available at http:// www.quality.nist.gov/Stock_Studies.htm) presents a very positi~,e picture of financial performance for MBNQA winners. According to these studies, a hypothetical index composed of publicly traded MBNQA firms outper- formed the S&P 500 index by 3 to 5 times depending on the time period investigated. On the other hand,

Przasnyski (1999) and Przasnyski and Tai (2002) reported results that appear tenuous, modest, or mixed at best. In other words, they conclude that MBNQA announcements do not enhance shareholder wealth. Using a different overall approach, Hendricks and Singhal (2001) evaluated the long-run stock performance of Total Quality Management (TQM) firms (broadly defined as winners of quality awards reported in The Wall Street Journal, PR Newswires, Businesswires, The Dow Jones News Service, Automotive Engineering, Business Electronics, Distribu- tion, and Ward's Auto World, among others). These authors compared the performance of such award-winning firms with a matched control group of In'ms across two time horizons: a 5-year implementation period and a 5-year postimplementation period. They found no difference in stock performance between the two groups during the implementation period, but the postimplementation period reflected differences ranging from 38 percent to 46 percent.

Our event study approach offers the opportunity to shed new light on inconsistencies in the research findings reviewed above. It offers an updated view of studies by Przasnyski and colleagues and extends their work in important ways (e.g., by comparing the performance pat- terns of MBNQA and JDPAA winners from a financial perspective). The following discussion of the history and characteristics of these two distinctive award types further justifies our research focus.

THE AWARDS

Malcolm Baldrige National Quality Awards (MBNQA)

This award, named after President Reagan's Secretary of Commerce, was instituted by Public Law 100-107 (Hodgetts 1993). Signed into law on August 20, 1987, it sought to establish a new public-private partnership on quality in the United States. While acknowledging the successful challenge from foreign competitors to product/ process quality in the United States at that time, this law established the MBNQA to encourage and recognize product quality excellence. Beginning in 1988, MBNQA was awarded annually to U.S. firms that demonstrated very significant quality leadership, following a highly competitive and elaborate evaluative process. From the outset, the MBNQA program was organized to focus intense attention on quality and competitiveness at the firm level, with a long-term goal of institutionalizing a culture of continuous improvement. In this spirit, the program operated as a public-private partnership. Specifically, it was managed by the National Institute of Standards and Technology (NIST; see www.nist.gov), an agency of the

Balasubramanian et al. / FIRM ACHIEVEMENTS 415

U.S. Department of Commerce; as Fisher (1994) noted, the MBNQA program also received support from a private foundation, fees, volunteers, a Board of Overseers, a Board of Examiners, and the American Society for Quality Control (ASQC). Both the MBNQA award process and related feedback from experts and award winners were fre- quently reviewed by congressional committees (e.g., Sub- committee on Technology, Environment and Aviation of the Committee on Science, Space, and Technology, U.S. House of Representatives 1993, 1994; Subcommittee on Technology of the Committee on Science, U.S. House of Representatives 1995).

At the time the MBNQA program was established, a few foreign governments had already built a successful record in achieving and sustaining quality leadership. Notably, Japan established the Derning Prize in 1951, awarded annually to Japanese manufacturers in recognition of demonstrable excellence in product quality. To accomplish a similar objective, the European Quality Award was launched by the European Foundation to Qual- ity in 1991 (Lee, Rho, and Lee 2003).

According to Hart and Bogan (1992), MBNQA was de- signed to accomplish the following key goals:

�9 Stimulate American companies to improve quality and productivity to obtain a competitive edge through increased profits

�9 Recognize achievements of companies that (a) improve the quality of their goods and services and (b) serve as an example worthy of emulation by other firms

�9 Establish guidelines and criteria that can be used by businesses, industrial, governmental, and other organizations to evaluate their own quality improvement efforts

�9 Help other American organizations that seek to manage for high quality; specifically, provide them guidance on strategies that winning organizations employ to change their cultures for achieving quality eminence

Following extensive consultations with quality experts, key elements of the Baldrige Award process were struc- tured around the following "seven pillars" criteria: leadership, information and analysis, strategic quality planning, human resource development and management, management of process quality, quality and operational results, and customer focus and satisfaction. This process allows a comprehensive, formal and multi-staged review of award applications. It includes an independent and consensus review by a panel of judges, followed by detailed evaluations during site visits. Currently, awards are given in five categories: manufacturing, service, education, small business, and health care. Winners are usually announced during November or December of each year. Overall, MBNQA is

a very prestigious national recognition for high-quality achievement. A great deal of media attention accompanies the award announcement.

J. D. Power and Associates Awards (JDPAA)

Over time, J.D. Power and Associates (http://www. jdpa.com/awards/about/index.asp) established a reputa- tion as an independent and reputable research firm that surveys millions of consumers worldwide each year to collect opinions about the products and services they pur- chase. The survey data are used to rank firms based on product quality, customer satisfaction, and other appropriate metrics of company performance. In other words, JDPAA recipients are identified following analyses of these survey databases. Notably, however, our search through the Lexis/Nexis database indicated that, unlike the MBNQA, the JDPAA do not attract attention in the national media. This is perhaps because a very large number of JDPAA recipients are announced each year, span- ning a large number of product/service categories, with each of several categories having multiple award titles. Given this, it is even possible for a =,given firm to receive multiple awards in a year. Absent the attention from national media, the publicity burden for JDPAA rests entirely on J. D. Power and Associates and the award- winning firms. For its part, J. D. Power and Associates publicizes these awards and other research information via their Consumer Center Web site (http://www.jdpower .com/cc/index.html). The stated goal of this effort is to benefit consumers, although it may yield spillover benefits from JDPAA recipients. In other words, JDPAA winners (firms who rank high in the consumer survey conducted by J. D. Power and Associates) may choose to license the use of the J. D. Power name to make award-related claims in their advertising messages.

HYPOTHESIS, METHOD, AND DATA

Hypothesis

From an event study perspective, the following two conditions generally enhance the likelihood that a given company-specific event will affect shareholder value: (a) information about the event must be effectively disseminated to investors (usually by the national press), and (b) the event must be perceived as significant by investors (the larger the number of such events in a given time, the less significant it is likely to be); in other words, the unique information value gleaned from an event gets diluted if a large number of such events occur. It is clear from the comparative summary of MBNQA and JDPAA characteristics (see Table 1 ) that JDPAA events do not satisfy these conditions, that is, they do not attract any attention in the na-


TABLE 1 A Comparison of MBNQA and JDPAA

MBNQA JDPAA

Elaborate criteria used for selecting award winners annually. Stated goal is to stimulate attention to quality among U.S. firms

Awards are expert-centric, that is, quality experts serve as judges during the awards process

Awards given to U.S. firms Awards focus on a few categories One or a few award recipients for each category A small number of award recipients are announced each year Awards attract considerable media attention Information on award contestants remains unknown until the award

announcement Only MBNQA program is offered Companies do not need a license to use the award information in

their advertising campaigns. Guidelines available to assure such advertising is appropriate

Award program is subject to congressional oversight

Data collected from user surveys (especially with regard to product quality. customer satisfaction, and other relevant performance metrics) form basis for annual awards. Stated goal is to benefit consumers

Awards are customer-centric, that is, they are determined by inputs from customers who use products and services evaluated for the award

Awards given to firms in the United States and other countries Awards focus on a large number of categories Some categories have a large number of awards A large number of award recipients are announced each year Awards attract no media attention Information on award contestants remains unknown until the award

announcement JDPA also offers a certification program in addition to the JDPAA Companies that rank highest in the J. D. Power research studies (i.e., award

winners) can license the use of the J. D. Power and Associates name for use in their advertising campaigns

Award program is not subject to any regulation

NOTE: MBNQA = Malcolm Baldrige National Quality Award; JDPAA = J. D. Power and Associates Awards.

tional media, and the number of JDPAA events is any given year is overwhelmingly higher than the number of MBNQA events. This is because JDPAA span a large number of product categories and include many awards within each category. A subset of these categories even tar- get specific countries/regions in the world. Moreover, the impact of JDPAA events may be further diluted by other certification programs that are also offered by J. D. Power and Associates to recognize firms for their product/quality achievements. It is also possible that, i fa high-quality division in a reputable company wins the JDPAA, this development may not necessarily surprise investors such that it posit ively affects shareholder wealth. We therefore propose the following:

Hypothesis 1: MBNQA are more likely to generate significant impact on shareholder wealth than JDPAA.

Event Study Methods

According to efficient markets theory (Fama 1970, 1991), which has abundant empirical support in the finance and allied business literature, all available information related to a firm's profitability is contemporane- ously priced into its stock value. That is, a firm's stock price at any given time is modeled as the appropriately dis- counted present value of its future cash flows whose mag- nitude, in turn, is affected by the nature of germane market information about the firm. Under the circumstances, only unanticipated variables (such as strategic actions or events involving the firm) should be associated with excess or abnormal stock returns. Researchers can, therefore, assess the value of any firm-specific strategic event through a

comparative study of stock price data before and after its occurrence (Day and Fahey 1990). Labeled as event study methodology, this research approach is a potent tool to appraise changes in shareholder value that are tied to a strategic event involving a specific firm.

Although event studies are popular in business disci- plines such as finance, only a limited number of such studies exist in the marketing literature (e.g., Agrawal and Kamakura 1995; Horsky and Swyngedouw 1987; Mathur and Mathur 2000; Mathur, Mathur, and Rangan 1997; Miyazaki and Morgan 2001; Kulkarni, Vora, and Brown 2003). However, several researchers offer a detailed discussion on the procedure for conducting an event study (e.g., Brown and Warner 1985; Kim and Morris 2003; Mathur and Mathur 1995), so we summarize the basic elements o f this methodology in the appendix.

Returns are modeled using the least squares market model. The announcement day is labeled Day 0. A 100- day period immediately preceding Day -10 is chosen to estimate the market model parameters. Cumulative average abnormal returns (CARs) for the (0) and (-1, 0) event windows are estimated, using the Center for Research on Security Prices (CRSP) equally weighted index as the market proxy.

Tse to quality award announcements for any firm in our sample he nature and scope of changes in stock price in responis influenced by several variables, ranging from its size, asset efficiency, growth opportunities, and profit mar- gins. We proxy these variables with the market value of the firm (MV); inventory tumover, that is, sales/inventory (INVT); Tobin's Q; market value of assets/book value of assets (Q); and net profit margin, that is, net income/sales (NPM). We examine the impact of these proxy measures


on firm value by estimating regression models with CARs(-I, 0) as the dependent variable, as shown below:

CARs(-I, 0) = ct + [3~ Ln(MV) + 13,_ INVT + 13~ Q + 13, NPM + ~,

(1)

where Ln(MV) is the log of MV.

Data

Details about the Malcolm Baldrige award were collected from the Baldrige National Quality Web site (http:// www.quality.nist.gov/index.html) and other authoritative sources (e.g., news stories culled from the Lexis/Nexis database) for the period November 1988 through Novem- ber 2002.

Data on U.S. firms recognized with the JDPAA for three product categories (Automotive, Travel, and Finance) were extracted from http://www.jdpower.com/ global/jdpaawards for the period January 1996 through December 2002. At the time of data collection, this Web site source provided information about JDPAA only for this time period. For analyses with both MBNQA and JDPAA databases, we retrieved additional returns data from the CRSP database and accounting data from Research Insights. An event in our database is broadly defined as the date when a quality award of research interest was announced.

RESULTS

Table 2 provides the descriptive data for the MBNQA and JDPAA recipients. There are marked differences in average market value and average inventory turnover between the two categories of award recipients, with the JDPAA recipients being larger. The former difference is due to the large number of automotive awards for the JDPAA, while the difference in the inventory turnover ratio arises because two of the three industries represented in our JDPAA database are from the service sector. To compare our MBNQA and JDPAA databases, Table 2 also reports the coefficient of variation, a measure of the relative scatter in data with respect to the mean. Note that the coefficient of variation is relatively higher for average inventory turnover in the case of MBNQA, when compared with JDPAA. This may reflect the broad range of industry categories represented by MBQNA recipients over time, as opposed to JDPAA recipients from only three categories that we selected for analysis. On average, MBNQA recipients have higher Tobin's Q's and NPMs than JDPAA recipients, indicating that the former firms have much higher levels of intangible assets.

The event study results are summarized in Table 3 for MBNQA and JDPAA Automotive, Travel, and Finance

categories. For the MBNQA sample, the Day 0 abnormal returns are 1.27 percent, significant at the 1 percent level (also see Figure 1). This result is consistent with Hypothe- sis 1 and indicates that, on average, the market reacted pos- itively to the announcement of MBNQA awards. The (-1, 0) window CARs at 1.30 percent are not significantly different from zero, thereby suggesting that the stock market neither receives advance information about the award (in the form of rumors) nor has the ability to anticipate or pre- dict the award recipients accurately a day ahead of the award event. In other words, there is no leakage of event information in advance.

The JDPAA automotive category has 77 announcements. The Day 0 and (-1, 0) window CARs are negative and not significantly different from zero (these results are also in line with Hypothesis 1). Similarly, the positive/ negative CARs are about evenly divided, and the sign test is not significant. The Day 0 results indicate that the stock market does not perceive the JDPAA to be important in increasing firm value. The (-1, 0) window results here suggest there is no leakage of event informatiorr.

The JDPAA travel category has 20 announcements. Similar to the case for JDPAA automotive awards, the event window CARs are not significantly different from zero (again, this is consistent with Hypothesis 1). There are more negative CARs than positive CARs, although the sign test is not significant. These results also suggest that the market does not consider the JDPAA in the travel category to have any significant influence on increasing firm value. Once again, the (-1,0) window results suggest there is no leakage of event information.

The last sample examined is the JDPAA finance category. The results for this category are similar to the results for the other two JDPAA categories (and also consistent with Hypothesis 1). Namely, the JDPAA events in all three categories examined do not produce significant shareholder value.

Table 4 provides the results from estimating multiple regression equation (1). Four regression models are estimated: one for MBNQA, one each for the JDPAA automotive and JDPAA travel categories, and one for the JDPAA pooled data that combines all three categories. The model for MBNQA does not show any variable that can explain variations in the dependent variable. This result suggests that size, efficiency, growth opportunities, and profit mar- gins do not help explain the announcement period CARs for the MBNQA recipients.

The model for JDPAA automotive category has a statistically significant fit. Two variables in the regression have significant coefficients. First, inventory turnover, a proxy variable for efficiency, has a significant negative coefficient. That is, less efficient firms receiving the JDPAA have higher CARs. This result, at first glance, appears an anomaly. However, if the JDPAA recognizes factors such as product quality and customer satisfaction, it is possible


TABLE 2 Descriptive Statistics

Coefficient Number of Standard of Variation

Variable Observations Mean Deviation (SD/M.I Median

Baldrige Awards Market value, in $ million 34 13,687 17,656 1.29 5,633 Inventory turnover 34 10.28 16.98 1.65 5.64 Tobin's Q 34 1.39 0.98 0.71 1.15 Net profit margin, % 34 5.22 5.10 0.98 5.63

J.D. Power Awards Market value, in $ million 110 31,364 46,344 1.48 38,345 Inventory turnover 110 16.26 14.33 0.88 12.59 Tobin's Q 110 0.99 0.56 0.57 0.85 Net profit margin, % 110 4.95 5.73 1.16 4.18

NOTE: This table presents the descriptive statistics for the variables used in analysis. The J. D. Power Awards include the auto, travel, and finance categories. Market value refers to the market value of the firm, inventory turnover is sales/inventory, Tobin's Q reflects growth opportunities and is computed as market value of assets to book value of assets, and net profit margin is net income/sales. Number of observations, mean, standard deviation, coefficient of variation, and median are reported.

TABLE 3 Cumulative Average Abnormal Returns

CAR Event Windows

Sample Type Number of Events (0) (-1, O) +/-

Baldrige Award 34 1.27 (2.61)*** 1.30 (1.59) 18/16 (0.61) J. D. Power Auto Award 77 --0.21 (-0.48) -0.07 (0.60) 39/38 (0.65) J. D. Power Travel Award 20 -0.32 (-0.70) -0.28 (-0.68) 9/11 (-0.23) J. D. Power Finance Award 13 0.46 (0.52) -0.10 (-0.28) 4/9 (-1.14)

NOTE: This table presents the announcement period cumulative average abnormal returns (CARs) for the (0), and (-1,0) event windows for the samples of announcements for fh'ms receiving the Baldrige orJ. D. Power Awards. Abnormal returns are calculated using the market model estimated from 110 to 11 days prior to the event announcement using daily Center for Research on Security Prices (CRSP) data. CARs represent the cumulative market model- adjusted change over the relevant event window. The CRSP EW Index is used as the market proxy. The Z statistics (given in parentheses) are based on the standardized cross-sectional method (Boehmer, Musumeci, and Poulsen 1991). The numbers of positive and negative CARs for the (-1,0) window are reported in italics in the last column under +/-, with the Z statistic for the nonparametric generalized sign test reported in parentheses in the last column. *** Significant at the I percent level using a two-tailed test.

that recipients of these awards sacrifice some degree of efficiency in order to focus on the award-criteria factors. Tobin's Q has a significant positive coefficient, suggesting that firms that have higher levels of intangible assets are more likely to experience higher CARs at the time when the JDPAA are announced.

The JDPAA travel category has a small sample size of 20. None of the regression coefficients are significant, and the interpretation here is the same as for the MBNQA results.

The fourth regression combines observations in the automotive, travel, and finance categories for the JDPAA. Tobin's Q has a significant positive coefficient, indicating that firms with larger amounts of intangible assets are more likely to add to firm value when they receive JDPAA.

It is useful to consider the financial returns over longer time horizons. Given the paucity of data, we evaluated returns for three such time horizons (6 months, 12 months, and 18 months). These financial returns were computed using the market model and CRSP data (see Table 5). For

both MBNQA and JDPAA, Table 5 clearly shows that financial returns for the three horizons are not statistically significant at the 5 percent level.

DISCUSSION, LIMITATIONS, AND CONCLUSIONS

To lend some perspective to the results above, it is useful to cast them in the context of prior research findings. Previous event studies (Przasnyski 1999; Przasnyski and Tai 2002) indicate that MBNQA award announcements fail to generate abnormal returns. However, the series of NIST studies discussed earlier and the Hendricks and Singhal (2001) study show that the true impact of high- profile quality awards like MBNQA may become evident over long-term horizons ranging between 5 and 10 years. In contrast to these studies, our findings are somewhat nuanced. We find that MBNQA announcements indeed generate positive abnormal returns for the period 1988-


FIGURE 1 Baldrige Awards--Mean Abnormal Return (MAR %)

TABLE 4 Multiple Regression Models

Variables Baldrige Award J. D. Power Auto Award J. D. Power Travel Award J. D. Power All Awards

Intercept 2.98 (1.12) -1.55 (-0.65) 2.81 (0.44) -2.59 (-1.32) Ln (market value) -0.29 (-0.93) 0.22 (0.99) -0.21 (-0.31) 0.15 (0.84) Inventory turnover 0.01 (0.22) -0.18 (-2.43)** -0.01 (--0.25) -0.02 (-0.87) Tobin's Q 0.78 (1.14) 1.30 (1.93)* -1.63 (--0.60) 1.20 (2.20)** Net profit margin --0.19 (-1.49) 0.07 (1.18) 0.10 (0.36) 0.06 (1.15)

n 34 75 20 108 A~ustedR 2 -.019 .087 -.216 .019 F statistics 0.84 2.76** 0.15 1.34

NOTE: This table shows the multiple regression results for the Baldrige and the J. D. Power Awards samples. The last regression combines the data for all three categories of the J. D. Power Awards. A model for the J. D. Power Financial Award is not estimated because of the small sample size. In each model, the dependent variable is the (-1,0) window cumulative average abnormal return. The independent accounting variables (market value, inventory turnover, Tobin's Q, and net profit margin), respectivel y, are proxies for firm size, asset efficiency, growth opportunities, and profitability. Ln (market value) is the log of market value. Inventory turnover is measured as sales divided by inventory. Tobin's Q is measured as the firm's market value of assets divided by book value of assets. Net profit margin is measured as net income divided by sales, t statistics are reported in parentheses. Adjusted R- and F statistics are reported. * Significant at the 10 percent level, using a two-tailed test. ** Significant at the 5 percent level, using a two-tailed test.

2002 for MBNQA but have no impact over shorter time horizons ranging from 6 to 18 months. Note that our database contained the MBNQA awards for the years 2000- 21302, a period not considered in the analyses reported by Przasnyski and Tai (2002).

When taken together, the preceding set of results point to the following implications. Firms interested in investing in quality improvements (with the possible goal of winning the Malcolm Baldrige awards, e.g.) may generate some intermediate to long-term wealth effects (i.e., 3 to 5


TABLE 5 Long Horizon Buy and Hold Average Abnormal Returns

Award Type Number of Events

CAR Event Windows

(+1, +6) Months (+1, +12) Months (+1, +18) Months

BaldrigeAward 34 -2.16% 15/19 -10.82% 13/21 -17.21% 13/21 (--0.53) (-1.22) (-I.22)

J. D. Power Auto Award 77 1.27% 39/37 0.00% 40/36 1.49% 36/40 (0.92) (1.15) (0.23)

J. D. Power Travel Award 20 4.91% 10/10 4.54% 10/10 -8.90% 8/12 (-o. lO) (-o. lO) (-l.OO)

J. D. Power Finance Award 13 -14.65% 6/7 -16.38% 5/8 -29.53% 3/10 (--0.15) (--0.71 ) (- 1.82)*

NOTE: This table presents the long horizon buy and hold average abnormal percent returns (BHARs) for the (+ 1, +6), (+ 1, + 12), and (+1. + 18) event windows, where the windows represent months after the announcement, for the samples of firms receiving the Baldrige or J. D. Power Awards. Abnormal returns are calculated using the market model estimated from 36 months to I month prior to the event announcement using monthly CRSP data. BHARs are the figures indicated as percentages in each cell and represent the buy and hold market model-adjusted change over the relevant event window for the corre- sponding award type. The Center for Research on Security Prices (CRSP) EW Index is used as the market proxy. For each cell, the numbers of positive and negative BHARs are reported in italics, with the Z statistic for the nonparametric generalized sign test reported in parentheses. CAR = cumulative average abnormal return. * Significant at the 10 percent level.

years), but no financial impact on fu'rn value is evident for short-term horizons (i.e., 6 to 18 months). The bulk of the financial returns for such quality improvements may occur over a long-term horizon. This broad inference is not only compatible with findings from our study, the Hendricks and Singhal (2001) and the NIST research series; it also reflects the collective wisdom shared by award winners over the years. Several companies have testified that winning the MBNQA award leaves lasting changes in terms of quality perceptions and culture within the organization, aspects that are unlikely to be captured in short-term share price fluctuations. For example, Motorola (a MBNQA winner) could not specify the incremental business opportunities created by the award but ascribed long-term changes in the company's culture to the competition, for example, continuous quality improvement efforts and embracing the total quality approach (Haavind 1992).

With respect to the JDPAA, we find no statistically significant impact in any of the three award categories. As noted in our arguments justifying Hypothesis 1, the JDPAA program spans a very large number of awards and does not attract media attention. Moreover, a limitation specific to the automotive category is the tremendous pro- liferation in the number of awards that may have diluted the "information value" surrounding the event for investors. The J. D. Power Web site justifies the large number of automotive awards by pointing to numerous model-level segments that exist within this industry. It further argues that the automotive awards generally reflect how consumers shop for cars. Another rationale offered is that customer expectations are different for different types of automotive vehicles.

Nevertheless, the lack of impact of JDPAA awards on shareholder wealth of award-winning firms merits further

discussion. Given its consumer-centric survey focus and recognition-oriented award focus on brands and/or firms, it is reasonable to argue that J. D. Power and Associates attempts to influence both consumers and marketers with its awards. Nevertheless, both consumers and marketers may also be highly motivated to assess the shareholder wealth impact of/DPAA awards, an aspect on which J. D. Power does not appear to have focused much attention. To the extent that shareholder wealth effects signal the economic worth of JDPAA, both consumers and marketers are likely to consider such information valuable. More- over, a subset of consumers could be active investors. As noted earlier, J. D. Power and Associates may facilitate positive wealth effects from JDPAA by reducing the number of awards and by promoting greater media attention to JDPAA. Because McGraw-Hill Companies recently acquired J. D. Power and Associates (Business Week

2005), researchers may find it useful to monitor future changes in award policies and goals prompted by this acquisition.

The travel category encompasses car rental companies, airlines, limited-service hotels, and full-service hotels. Some of the award recipients have either gone out of business or are financially constrained. Thus, the CARs may simply reflect the economics of the industry during the sample period. With respect to the finance category, an obvious limitation was that only 13 events were available for analysis. Perhaps this artifact contributed to the lack of statistically significant results.

It is important to acknowledge the general limitations of event studies. As noted earlier, stock market prices represent just one indicator of effectiveness of strategic actions in the quality domain. Other factors may have a qualitative impact over time, as exemplified in the


Motorola case. In general, we must recognize that event studies may not fully capture all the quality award-related impacts, because both the MBNQA and the JDPAA often relate to one small division or one brand, while the research method focuses on evaluating the entire company. Moreover, another limitation of event studies is that organizations that do not have securities that trade on the stock market (private companies, not-for-profit corporations) are systematically excluded from analysis. Finally, although we use the market model to control for factors other than the event of research interest that could have affected shareholder value, it must be acknowledged that this may not adequately address all possible factors that may impinge on our results.

In terms of future research, one needs to recognize that the key to quality enhancement efforts is to continuously improve the process involved and to learn from this experience. The goal is not necessarily to win awards, as the Motorola experience suggests. To truly assess the shareholder value impact of quality improvements, one must recognize that this involves a two-step process: (1) real quality improvements emerge from strategic actions (this may be true of both winners and nonwinners), and (2) winners gain recognition and extemal validation from an independent third party process (MBNQA or JDPAA). It will be interesting to compare the financial impact of quality- related initiatives at both award-winning organizations and those that tried to win awards but failed. If such research indicates no differences in the degree of financial impact across all time horizons and reveal significant long-term positive returns, the true purpose of quality awards (to increase quality perceptions and impact at every organization) will have been realized.

It must be recognized that not all firms aspire for quality awards but nevertheless manage to remain committed to quality-improvement efforts. The MBNQA program lists elaborate criteria for scoring quality improvements and emphasizes the assessment process that underlies the continuous improvements in quality that are so vital to the TQM movement. Several firms that do not compete for quality awards may have openly embraced such quality award criteria, both in the United States and abroad (Eriksson, ]ohansson, and Wildund 2003). It will be useful to compare the stock performance of firms that have explicitly integrated the MBNQA and/or JDPAA spirit into their organizations, relative to other firms that have not done so.

It is possible that the real potential of the MBNQA program may lie in the award applications disseminated to firms, a number that is several thousandfold higher than the actual number of award contestants. Stated differently, three issues stand out here. First, it is possible for a firm to profitably integrate the quality-improvement imperative even if it is not a contestant for the MBNQA. Second, noncontestant firms significantly outnumber MBNQA

contestants. Third, MBNQA contestants outnumber MBNQA winners. Therefore, it is possible that quality- embracing noncontestants ultimately contribute more to the overall long-term improvement in national quality standards than MBNQA contestants or award winners. We hope our study stimulates more research in this exciting area.

ACKNOWLEDGMENTS

We thank two anonymous reviewers for their very help- ful comments on earlier drafts of the article. The fast two authors acknowledge support from a research grant titled "Understanding How Strategic Marketing Actions Change Shareholder Value" funded by the Office of Research and Development Administration at Southern Illinois Univer- sity at Carbondale.

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ABOUT THE AUTHORS

Siva K. B a l a s u b r a m a n i a n ([email protected]) is the Henry J�9 Rehn Professor of Marketing in the College of Business Admin- istration at Southern Illinois University, Carbondale. His research investigates the impact of marketing strategies on shareholder value, new product diffusion, marketing communi- cations, and methodological issues in measurement. His publica- tions have appeared in the Journal of Marketing, the Journal of Marketing Research, the Journal of Consumer Research, the Journal of the Academy of Marketing Science, the International Journal of Research in Marketing, the Journal of Advertising, the Journal of Current Issues and Research in Advertising, the Jour- nal of Consumer Affairs, Rev&w of Agricultural Economics, the Journal of Agricultural and Resource Economics, AgBioForum, and the British Food Journal.

Ike M a t h u r ([email protected]) is a professor of finance at Southern Illinois University (SIUC). He has served as interim dean for the College of Business and chair of the Department of Finance, all at SIUC. He is the author or coauthor of more than 100 articles and 14 books. He has published in the Journal of Fi- nancial and Quantitative Analysis, the Journal of Banking and Finance, the Journal of International Money and Finance, the Journal of Futures Markets, Economic Letters, the Journal of In- ternational Business Studies, the Journal of Business Research, the Journal of Business, the Journal of Advertising, the Journal of Advertising Research, and the Journal of Macromarketing. He serves on the editorial board of a number of journals and is the ed- itor of the Journal of lnternational Financial Markets, Institu- tions & Money, and the Journal of Multinational Financial Management.

Ramendra Thakur ([email protected]) is an assistant professor at Utah Valley State College�9 His research interests are in customer re la t ionship management , e-commerce , h igh- tech marketing, and marketing models. He has published in the Mar- keting Management Journal, the International Journal of E- Business Research, and the Journal of Website Promotion. In addition, his scholarly works have been published in several national and international conference proceedings. He is also on the editorial board of Industrial Marketing Management.

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