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Does Quality Still Pay? A Reexamination of the Relationship Between Effective Quality Management and Firm Performance



Because of the changing competitive environment, quality might have lost some of its luster and emphasis in business. The research question we aim to address in this paper is: Does quality still pay in the new competitive environment? Using replication research, we re-examine the impact of an effective total quality management (TQM) program on a firm's operating performance in the new competitive environment. We use publicly available data for award-winning firms and adopt several control-firm-selection approaches in our event study. Based on data from more than 500 firms, we find that over a 10-year period—6 years before to 3 years after winning their first quality award—firms in our sample perform significantly better than control groups in various operating performance measures. Not only do award-winning firms have better results after receiving awards, they also have superior performance records before the award. Our results suggest that quality is still critical to achieving long-term competitive advantages, and firms who continuously improve their quality continue to reap rewards by way of sales and financial performances exceeding those of their competitors.