Dynamic capability: explaining the impact of ISO 14001 on Corporate Financial Performance

Abstract

This study employs a quasi-experimental design to examine the function of dynamic capabilities (early adoption and path-dependent learning experience) in the process of implementing ISO 14001. Approximately 97 pairs of companies (N = 194) were collected from the Standard & Poor's (S&P) database, all of whom had at least one International Organisation for Standardisation (ISO) certificate and for whom five years of financial data were available. The initial differences were controlled using Analysis of Covariance (ANCOVA) to compare ISO companies with their matched comparison companies on the effect of ISO 14001 registration (independent variable) and on financial performance (two dependent variables): Return on Revenue (ROR) and Return on Assets (ROA). The results indicate that ISO 14001 registration has led to a reduced ROR in the two-year period and no change in the third year. ROA was not associated with ISO 14001 registration. Early adoption, the length of ISO registration and the size of the company did not affect the relationship between ISO registration and financial performance. Furthermore, the results illustrate that many companies have not yet gained the capability to ruminate and digest the dynamic nature of ISO 14001. An opportunity exists for future researchers to establish and examine the function of dynamic capabilities and their impact on the quality of ISO implementation.