Abstract: This paper examines the effects of ISO9000 certification on the financial performance of Chinese productive service enterprises by employing the propensity score matching and coarsened exact matching based on a large sample of firm-level data to address selection bias and endogeneity issues. Our empirical results show that the certification increases the sales of Chinese producer service firms, significantly decreases their internal productivity and reduces profitability of the firms, implying that the external benefits from signaling of the certification could crowd out the efficiency enhancement derived from adopting the standards. Our further studies also show that earlier adopters could achieve larger increase in sales and more pronounced decrease in productivity. Firms engaged in supplying producer service with higher technology intensity obtain larger advantage in sales, a smaller decline in productivity, but a larger decline in profit margins. The results indicate that the rapid spread of ISO9000 certification in producer services of China has not generally improved financial performance of the adopting firms. The inhibiting effects of the certification on productivity and profitability may hinder the upgrading of producer services in China in long run. As to the policy implications, the government should reduce the level of information asymmetry in the productive service market, strengthen the supervision of certification bodies, and rectify the myopia of service firms by improving efficiency of factor market.

Key words: ISO9000 certification, producer service firms, signaling, productivity crowding-out effect