LONG-TERM PROVISIONS AS A SECURITY MECHANISM DUE TO A LACK OF QUALITY

Milica Ristic and Radenko Milojevic, Marija Radosavljevic

Faculty of Economics, University of Nis, Nis, The Republic of Serbia

Modern business conditions have decisively been indicating that quality is the basis of the competitiveness of a company. A lack of quality creates dissatisfaction and affects customer loyalty. Lately, there has been a tendency of the growth of non-quality costs, which is a consequence of a lack of the quality of the products delivered. Although numerous studies suggest models for calculating non-qualitative costs, no relevant mechanism has been found yet to manage these costs. In this study, the authors attempted to find a link between long-term provisions and the external failure cost since this relation has not received other researchers’ attention so far, as it deserves. The aim of the research is to point out the importance of long-term provisions as relevant instruments to control external failure costs. Different surveys have confirmed the initial assumption and showed that long-term provisions are effective instruments for managing the costs of external failure. A positive, statistically significant correlation between long-term provisions and the net profit of a company was also identified among the first 100 enterprises from the list of the most successful enterprises in the Republic of Serbia in 2017.

Keywords: quality, quality costs, external failure costs, long-term provisions

JEL Classification: L52, M21, M41