Can Certification Improve Venture Performance in Impoverished Areas?

Prevailing theory assumes certifications signal quality for firms, yet these very same signals hinder performance for firms in impoverished areas. Therefore, we ask: can certifications increase, rather than decrease, venture performance in impoverished areas? To address this question, we place greater consideration on the role of the firm’s context in influencing the salience of certifications. Namely, we expand the prevailing focus on firm certifications of quality to include place certifications of need. We then explore three views for how place need certifications may impact venture performance: (1) halo effect (impacting all ventures within the certified place); (2) spillover effect (impacting only ventures with firm quality certifications in the certified place); and (3) beacon effect (impacting uncertified ventures via their proximity to certified ventures within the certified place). Our empirical setting draws upon ventures located within U.S. Historically Underutilized Business Zone areas. Using a regression discontinuity design for a sample of ventures founded between 2014 to 2017, we find evidence that place certifications of need increase venture performance via halo and beacon effects. We offer theoretical and practical implications for seeking broader and more inclusive effects from certifications.