Is ISO 14001 Certification Effective? An Experimental Analysis of Firm Profitability

Abstract

This paper examines the effect environmental management certification (ISO 14001) has on publicly tradedBrazilian companies profitability. Signaling theory predicts that the certification serves to signal to society goodenvironmental behavior; allowing people to screen the different types of firms, improving the financialeconomicperformance of those firms that engage in this behavior. We performed difference-in-difference fixedeffect design comparing the financial performance of companies with and without certification of theirenvironmental management systems, using data on 552 companies over the period from 1996 to 2008. Theresults indicate that firms with an environmental management system certified according to the NBR ISO14001:2004 standard tended to be more profitable, on average, than firms without certification.

Keywords

• certification
• profitability
• NBR ISO 14001:2004.