The Long-Run Performance of Firms Awarding “Excellent Quality Competitiveness Enterprise”
Authors:   Asia-Europe Perspective Association, Kim Yong-Hyeon 
Published: October 2019

Quality management started from eliminating defective products in the manufacturing process to secure quality, and then developed into statistical quality control. Currently, this means a total quality management (TQM) system, in which all of a firm’s activities affecting quality are included. Many countries are aware that the competitiveness of their countries depends upon the quality competitiveness of enterprises. Countries around the world established similar national award since the United States has enacted the Malcolm Baldrige National Quality Award to improve the quality competitiveness of domestic companies. Korea also operates the national quality awards system, such as ‘National Quality Grand Award’, ‘National Quality Grand Award’ and ‘Excellent Quality Competitiveness Enterprises’. Among these awards, ‘Excellent Quality Competitiveness Enterprises (EQCE)’ has the advantage of sustainable quality improvement in that companies can conduct self-diagnoses by applying specific criteria, and companies can earn the award without duplicate restrictions.
The purpose of this paper is to compare the long-run performance of the excellent quality competitiveness enterprise (EQCE) awarding companies relative to matching non-awarding companies in the Korean stock market. The contribution of this paper is as follows. Firstly, while prior studies have examined the comparison using accounting performance, this study compares economic performance. Accounting evaluation is based upon the accounting ratio, which is extracted from financial statements. Financial statements evaluate past financial status and management performance of firms. However, economic performance is based on capital market data, which is assumed to evaluate present and future performance of firms. Secondly, this paper employs stock returns as a measure of financial performance using capital market data. Moreover, current study diversifies the performance measure by using not only stock returns but also operating performance and Tobin’s Q. Thirdly, the existing studies have compared the accounting performance of the sample firms with the average accounting value of the whole manufacturing industry firms. Since a lot of empirical evidence has shown that the effect of macro-economic variables are different by industries, it is necessary to analyze the performance comparison of firms by each industry. This paper compares the performance of sample firms with those of matching firms, which are chosen according to the most similar size among which the sample firms belong. Fourthly, many previous studies have reported that investment and capital financing behaviors of companies are different by the economic expansion and contraction periods. Thus, the company performance is also likely to vary depending on the economic phases. Current study compares the financial performance of companies with matching firms by classifying the sample period according the economic phases of expansion and contraction.
The samples consist of 42 EQCE awarding firms and their corresponding matching firms from 2003 to 2014. The first proxy of long-run performance is stock returns of the firm, which is commonly used in measuring firm performance. The second proxy of long-run performance is operating performance of (EBITDA/TA), where the EBITDA is the earnings before interest, taxes, depreciation and amortization, and TA is the total assets of the firm. The third proxy of long-run performance is Tobin’s Q of (MVE+PS+DEBT)/TA, where the MVE is the market value of equity, PS is the market value of preferred stock, DEBT is the book value of debt, and TA is total assets of the firm. The two-tailed T-test results of mean difference of sample firms and comparable firms indicate that the matching firms are adequately chosen to their corresponding sample firms.