The effect of ISO 14001 certification announcements on stock performance

Abstract

Purpose

This study aspires to explore how the US stock market reacts to ISO 14001 certification announcements.

Design/methodology/approach

The paper employs an event‐study methodology on a sample of 140 announcements and matching control firms to study the impact of ISO 14001 certification announcements.

Findings

The results suggest that ISO 14001 certification announcements have a negative impact on stock performance. More importantly, they show that the shareholder wealth reduced due to these certifications announcements.

Research limitations/implications

This study focuses on short‐term stock market reaction. Future studies should consider the entire sample of ISO 14001‐certified firms within the USA and use certification date to evaluate short‐ as well as long‐term improvements in shareholder wealth.

Practical implications

The results suggest that firms will need to educate shareholders about their actions towards the betterment of the environment. Such coordinated communication will ensure that the ISO 14001 standard is highly regarded, widely adopted, and even requested by shareholders.

Originality/value

Past empirical studies indicate that certified environmental management systems help organizations to reduce waste and pollution, thereby ultimately resulting in superior environmental and economic performance. At the same time, given its focus on the process rather than performance outcomes, opponents criticize ISO 14001 suggesting that it is just a label for image building. Owing to this dilemma, it is pertinent to evaluate how shareholders perceive a firm's attainment of ISO 14001 certification announcements.

Citation

Paulraj, A. and de Jong, P. (2011), "The effect of ISO 14001 certification announcements on stock performance", International Journal of Operations & Production Management, Vol. 31 No. 7, pp. 765-788. https://doi.org/10.1108/01443571111144841